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Energy - Ontario Energy Board
MORE CASES
Part 2
. Leamington (Municipality of) v. Enbridge Gas Inc.
In Leamington (Municipality of) v. Enbridge Gas Inc. (Div Court, 2023) the Divisional Court considers an appeal under s.33 ['Appeal to Divisional Court'] of the Ontario Energy Board Act (OEB), here of the OEB's decision to approve "the application of the respondent Enbridge Gas Inc. to renew the existing natural gas franchise between Leamington and Enbridge on the terms and conditions set out in the OEB’s Model Franchise Agreement".
In these quotes the court considers OEB Act appeal law to the Divisional Court and related standards of review [OEBA s.33]:IV. Jurisdiction and standard of review
[30] The Divisional Court has jurisdiction to hear this appeal, but only on a question of law or jurisdiction: OEB Act, ss. 33(1), 33(2). Absent an extricable error of law, the OEB’s findings of fact and its findings of mixed fact and law (which include the application of correct legal principles to the evidence) cannot be appealed.
[31] The standard of review is correctness for questions of law or jurisdiction, including legal principles extricable from questions of mixed fact and law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 34-37; Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at para. 37.
[32] When the decision under appeal is fact-intensive or involves the exercise of discretion, care must be taken in identifying extricable errors of law since the process of severing out legal issues can undermine the standard of review analysis. An arguably unreasonable exercise of discretion is not an error of law or jurisdiction: Wood Buffalo (Regional Municipality) v. Alberta (Energy and Utilities Board), 2007 ABCA 192, 80 Alta. L.R. (4th) 229, at para. 8; Natural Resource Gas Limited v. Ontario (Energy Board), 2012 ONSC 3520 (Div. Ct.), at para. 8; Conserve Our Rural Environment v. Dufferin Wind Power Inc., 2013 ONSC 7307 (Div. Ct.), at para. 13.
[33] While the court is empowered to replace a tribunal’s opinion on questions of law with its own, the correctness standard does not detract from the need to respect the tribunal’s specialized function. The tribunal’s subject matter experience and expertise relating to the requirements of its home statute should be taken into account: Reisher v. Westdale Properties, 2023 ONSC 1817 (Div. Ct.), at paras. 9-10, citing Planet Energy (Ontario) Corp. v. Ontario (Energy Board), 2020 ONSC 598 (Div. Ct.), at para. 31, in which the court stated as follows:While the Court will ultimately review the interpretation of the [Ontario Energy Board] Act on a standard of correctness, respect for the specialized function of the [Ontario Energy] Board still remains important. One of the important messages in Vavilov is the need for the courts to respect the institutional design chosen by the Legislature when it has established an administrative tribunal (at para. 36). . Leamington (Municipality of) v. Enbridge Gas Inc.
In Leamington (Municipality of) v. Enbridge Gas Inc. (Div Court, 2023) the Divisional Court considers an appeal under s.33 ['Appeal to Divisional Court'] of the Ontario Energy Board Act (OEB), here of the OEB's decision to approve "the application of the respondent Enbridge Gas Inc. to renew the existing natural gas franchise between Leamington and Enbridge on the terms and conditions set out in the OEB’s Model Franchise Agreement".
In these quotes, the court illustrates procedures of this area of energy law, here involving the Municipal Franchise Act:[2] In the OEB Decision, the OEB approved the application of the respondent Enbridge Gas Inc. to renew the existing natural gas franchise between Leamington and Enbridge on the terms and conditions set out in the OEB’s Model Franchise Agreement.
[3] The Model Franchise Agreement includes a provision relating to the sharing of costs (“gas system relocation costs”) if Leamington requires Enbridge to remove or relocate any part of the gas system to permit Leamington to carry out municipal works, including drainage works. The relocation costs sharing provision would require Leamington to pay part of the costs increase for drainage works that would otherwise be payable entirely by Enbridge under the Drainage Act, R.S.O. 1990, c. D.17.
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A. The parties
[6] Leamington is a municipal corporation under the laws of Ontario. It is one of the lower-tier municipalities whose areas comprise the County of Essex.
[7] Enbridge is an OEB-regulated natural gas storage, transmission, and distribution company that provides natural gas services to homes and businesses in Leamington and elsewhere in Ontario.
[8] The OEB is the independent regulator of electricity and natural gas sectors in Ontario. The Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B. (“OEB Act”), along with the Municipal Franchises Act, R.S.O. 1990, c. M.55 (“MF Act”), set out the OEB’s regulatory mandate and powers that are relevant for the purposes of this appeal.
[9] The OEB’s approval is required for gas companies to construct any works to supply natural gas in any Ontario municipality pursuant to “certificates of public convenience and necessity” issued by the OEB: MF Act, s. 8. Enbridge is authorized to construct works to supply natural gas to persons within the municipal boundaries of Leamington pursuant to such a certificate granted to Enbridge’s predecessor corporation, Union Gas Limited, on March 17, 1959.
[10] Since that time, Enbridge (or its predecessor corporation) has delivered natural gas distribution services to customers in Leamington under the terms of a franchise agreement between Leamington and Enbridge, as described further below. Prior to the application that is the subject of this appeal, the most recent franchise agreement between Leamington and Enbridge was entered into on January 20, 2003.
B. Regulatory framework
[11] The OEB is an independent quasi-judicial regulatory body with broad statutory powers to regulate the natural gas industry. In doing so, the OEB exercises a public interest mandate, which includes promoting a financially viable and efficient energy sector that provides the public with reliable energy services at a reasonable cost: OEB Act, ss. 1, 2
[12] As part of its mandate, the OEB regulates natural gas distributors (including Enbridge) and their transmission and distribution of gas through and within municipalities (including Leamington). The OEB’s regulatory powers are broad, and include: regulating the terms of franchise agreements between municipalities and utilities; approving applications for “certificates of public convenience and necessity” for the construction of works to supply gas; and approving the construction, expansion or reinforcement of pipelines.
[13] Under the OEB Act, the OEB has “exclusive jurisdiction in all cases and in respect of all matters in which jurisdiction is conferred on it by this or any other Act”: OEB Act, s. 19(6). In all matters within its jurisdiction, the OEB has authority to hear and determine all questions of law and of fact: OEB Act, s. 19(1).
C. Natural gas franchise agreements
[14] A utility is not permitted to provide gas transmission and distribution services through or within an Ontario municipality unless the requirements of the MF Act have been met. The MF Act requires the municipality to enter into a franchise agreement with a natural gas distributor: MF Act, s. 3. The terms and conditions of the franchise agreement must be approved by the OEB: MF Act, s. 9.
[15] Where a franchise agreement has expired or is about to expire within a year, either the municipality or the utility may make an application to the OEB for a renewal or an extension of the franchise rights, including in circumstances where the parties are not able to agree on the terms and conditions for renewing or extending the franchise agreement: MF Act, s. 10. In that regard, s. 10(2) provides as follows:Powers of Energy Board
(2) The Ontario Energy Board has and may exercise jurisdiction and power necessary for the purposes of this section and, if public convenience and necessity appear to require it, may make an order renewing or extending the term of the right for such period of time and upon such terms and conditions as may be prescribed by the Board, or if public convenience and necessity do not appear to require a renewal or extension of the term of the right, may make an order refusing a renewal or extension of the right. [Emphasis added.] [16] As s. 10 and related provisions in the MF Act make clear, the MF Act confers on the OEB a broad and highly discretionary power to make decisions about the renewal of natural gas franchises, based on “public convenience and necessity”, and to decide the terms of such renewal. In Sudbury (City) v. Union Gas Ltd. (2001), 2001 CanLII 2886 (ON CA), 54 O.R. (3d) 439 (C.A.), at para. 6, the Court of Appeal for Ontario stated that the MF Act and the OEB Act “make clear that the Legislature has accorded to the OEB the widest powers to regulate the supply and distribution of natural gas in the public interest” (emphasis added). At para. 23, the court went on to state the following about the OEB’s authority with respect to a franchise renewal or extension:Section 10 of the Municipal Franchises Act … protects the interests of those who depend on the gas distribution system by allowing either the municipality or the gas utility company to seek a renewal or extension of the bundle of rights that is the franchise. The OEB may make the order on the terms it determines necessary to protect the public interest. In my view, a purposive reading of the section gives to the OEB a broad power to impose the terms of renewal or extension of the franchise so that service to the public will not be interrupted simply because the municipality and the utility have been unable to agree on the terms for carrying on the service. [Emphasis added.] D. Model Franchise Agreement
[17] After an extensive public consultation and hearing process (including oral and written submissions from municipalities and other interested parties), the OEB developed a Model Franchise Agreement in order to standardize the format and content of franchise agreements between natural gas distributors and Ontario municipalities. Following a public hearing in 1985 and a resulting OEB report, the OEB approved the initial version of the model agreement in 1987, which was revised in 2000 following a further public hearing in 1999 and a subsequent OEB report.
[18] The purpose of the Model Franchise Agreement is to provide a template to guide natural gas distributors and municipalities as to the terms and conditions that the OEB generally finds reasonable: OEB, Guidelines for Gas Expansion in Ontario, OEB-2015-0156, February 18, 2015, at p. 4. The OEB has advised that natural gas distributors “are expected to follow the form of the Model Agreement when filing applications for the approval of franchise agreements, unless there is a compelling reason for deviation”: Epcor Natural Gas Limited Partnership, Decision and Order EB-2021-0269, February 17, 2022, at p. 8. Virtually all municipal franchise agreements in Ontario are currently in the form of the OEB’s Model Franchise Agreement: see OEB, Natural Gas Facilities Handbook, EB-2022-0081, March 31, 2022, at p. 10.
E. Gas system relocation costs
[19] Section 12 of the Model Franchise Agreement addresses how municipalities and natural gas distributors will share the costs of relocating gas works where such works are relocated at the request of the municipality. Section 12(d) provides that such costs will generally be paid 35 percent by the municipality and 65 percent by the utility company.
[20] The issue of costs allocation for the relocation of gas works received a significant amount of attention and consideration as part of the consultation and hearing process that led to the adoption of the Model Franchise Agreement in 1987 and its amendment in 2000. At the 1999 hearing, the issue of relocation costs was again heavily contested, but the resulting OEB report rejected a request that the utility companies be required to pay 100 percent of the relocation costs required for municipal purposes. The OEB concluded that it continued to be generally appropriate that the municipality should bear 35 percent of the relocation costs “as a disincentive to municipalities to require gas line relocation” as a result of their municipal works: Union Gas Limited v. Norwich (Township), 2018 ONCA 11, 140 O.R. (3d) 712, at para. 30. As a result, the costs sharing provision for relocation costs in the 1987 Model Franchise Agreement was confirmed (with minor differences) in the 2000 version of the agreement.
[21] The relevant portions of the Model Franchise Agreement are as follows (emphasis added):12. Pipeline Relocation
a. If in the course of constructing, reconstructing, changing, altering or improving any highway or any municipal works, the [municipal] Corporation deems that it is necessary to take up, remove or change the location of any part of the gas system, the Gas Company shall, upon notice to do so, remove and/or relocate within a reasonable period of time such part of the gas system to a location approved by the Engineer/Road Superintendent.
b. ... .
c. Where any part of the gas system relocated in accordance with this Paragraph is located other than on a bridge, viaduct or structure, the costs of relocation shall be shared between the Corporation and the Gas Company on the basis of the total relocation costs …. [calculation method omitted]
d. The total relocation costs as calculated above shall be paid 35% by the Corporation and 65% by the Gas Company, except where the part of the gas system required to be moved is located in an unassumed road or in an unopened road allowance and the Corporation has not approved its location, in which case the Gas Company shall pay 100% of the relocation costs. III. OEB Decision under appeal
[22] The most recent franchise agreement in place between Enbridge and Leamington was dated January 20, 2003 (the “2003 Agreement”) and had a term of 20 years (running until January 2023). This agreement was based on the terms of the OEB’s Model Franchise Agreement, without amendment.
[23] Prior to expiry of the 2003 Agreement, Enbridge made an application under s. 10 of the MF Act, seeking an order approving a renewal of its gas franchise with Leamington, based on the terms and conditions of the Model Franchise Agreement and consistent with the terms of the 2003 Agreement, including s. 12 of the Model Franchise Agreement relating to pipeline relocation costs.
[24] Leamington was granted intervenor status as a party in the application. Leamington objected to s. 12(d) of the Model Franchise with respect to relocation costs that fall within the scope of s. 26 of the Drainage Act. Section 26 of that Act provides as follows:26. In addition to all other sums lawfully assessed against the property of a public utility or road authority under this Act, and despite the fact that the public utility or road authority is not otherwise assessable under this Act, the public utility or road authority shall be assessed for and shall pay all the increase of cost of such drainage works caused by the existence of the works of the public utility or road authority. [25] Under s. 26 of the Drainage Act (if applicable), Enbridge would be required to pay the entire amount of any increase in gas system relocation costs if relocation of the gas system was required to allow Leamington to perform drainage works. Under s. 12(d) of the Model Franchise Agreement, Leamington would be required to pay 35 percent of that costs increase. Leamington objected to s. 12(d) to the extent that it would require Leamington to pay part of the relocation costs required for drainage works that would otherwise be payable by Enbridge under s. 26 of the Drainage Act.
[26] At the OEB hearing, Leamington argued that deviation from the Model Franchise Agreement was warranted because of its “unique” drainage systems and because paying such relocation costs would place an unnecessary burden on its taxpayers. Leamington submitted that “public policy would dictate that such costs should be spread amongst the Enbridge ratepayers, rather than the Municipality’s taxpayers”: OEB Decision, at p. 9. Leamington asserted that it previously agreed to the terms of the Model Franchise Agreement based on the understanding that the Drainage Act would govern matters involving drainage works. However, the 2018 Court of Appeal decision in Norwich “changed the landscape”, with the result that Leamington did not agree to contract out of the Drainage Act.
[27] In the OEB Decision, the OEB found that “public convenience and necessity” required the renewal of the natural gas franchise between Leamington and Enbridge: OEB Decision, at pp. 5-7. The OEB also found that that the renewal of the gas franchise would be based on the terms of the Model Franchise Agreement, without amendment.
[28] The OEB concluded that although Leamington may prefer the Drainage Act because it is a more favourable result for municipalities, there was no basis in these circumstances to deviate from the relocation costs sharing provision contained in the Model Franchise Agreement:The standard terms that address cost-sharing in the Model Agreement were developed to provide certainty and resolve any dispute in an equitable manner. While the OEB understands that the Drainage Act may provide a more favourable result for the Municipality, the OEB finds that the Norwich decision supported a view of the Model Agreement, in general, as best meeting the public interest by providing fair treatment of both the civic duties of the Municipality and the fair treatment of Enbridge Gas’s ratepayers. This is preferable to a piecemeal approach of negotiating terms specific to a franchise. The OEB is ultimately not convinced that topographic difficulties referenced by the Municipality are sufficient to initiate a renegotiating of cost-sharing provisions in the Model Agreement. Moreover, the OEB notes that the cost-sharing arrangement in the Model Agreement is not an outlier, as such arrangements to share costs of necessary public requirements in which the municipality may have an interest exist in multiple contexts (see for example, the Public Service on Highways Act). [Emphasis added.] [29] By Notice of Appeal dated April 24, 2023, Leamington appeals the OEB Decision. The court continues [at paras 34-45] to consider the OEB's power in this specific context as a matter of statutory interpretation.
. West Whitby Landowners Group Inc. v. Elixicon Energy
In West Whitby Landowners Group Inc. v. Elixicon Energy (Div Ct, 2022) the Divisional Court sets out some basics of the OEB regime:[19] Part VII of the Ontario Energy Board Act sets out the OEB’s powers to appoint inspectors and conduct inspections.
[20] In that context, section 105 of the Ontario Energy Board Act provides that the OEB may receive complaints and sets out theOEB’s powers for disposing of a complaint:The Board may,
(a) receive complaints concerning conduct that may be in contravention of an enforceable provision whether the conduct constitutes an offence or not; and
(b) make inquiries, gather information and attempt to mediate or resolve complaints, as appropriate, concerning any matter that comes to its attention that may be in contravention of an enforceable provision whether the matter constitutes an offence or not. [21] Part VII also sets out the extensive powers given to inspectors under the Act, including powers to obtain documents and conduct searches.
[22] Part VII.1 of the Ontario Energy Board Act is titled “Compliance” and sets out the OEB’s powers to enforce compliance with the Act. This Part gives the Board the power to make various orders directed at compliance:a. Section 112.3 gives the OEB the power to make an order to comply with the Act where “it is satisfied that a person has contravened or is likely to contravene an enforceable provision”;
b. Section 112.4 gives the OEB the power to suspend or revoke a licence where it is satisfied that a person who holds a licence has contravened the Act; and
c. Section 112.5 gives the OEB the power to impose an administrative penalty if it is satisfied a person has contravened the Act. [23] It is in the context of this Part that the Board may hold a hearing. In accordance with section 112.2(2) of the Act, when the OEB exercises any of its powers under sections 112.3, 112.4 or 112.5, it must give written notice to the person against who it intends to make an order. Pursuant to section 112(3), that person is entitled to request that the Board hold a hearing.
[24] Section 112.2(1) of the Act provides that an “order under section 112.3, 112.4 or 112.5 may only be made on the Board’s own motion”. . Enbridge Gas Inc v. Ontario Energy Board
In Enbridge Gas Inc v. Ontario Energy Board (Div Ct, 2020) the Divisional Court sets out briefly the role of the Ontario Energy Board:[4] The OEB is the energy regulator for Ontario. It has the power to set the rates that a regulated utility can charge its customers. Pursuant to s. 36(2) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B (the “Act”), the OEB is authorized to “make orders approving or fixing just and reasonable rates” for the sale, transmission, distribution and storage of natural gas. Pursuant to s. 36(3), it may adopt any method or technique that it considers appropriate for approving or fixing just and reasonable rates. When an applicant seeks approval for rate changes, it has the burden to show the rates sought are just and reasonable (s. 36(4)).
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[14] Pursuant to s. 33(2) of the Act, an appeal lies to this Court from an order of the OEB only on a question of law or jurisdiction. Given the decision of the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, the standard of review on this appeal is correctness (see para. 37).
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