Canada: Restoring An OEB Rate Ruling, The SCC Reaffirms Discretion Of Canadian Tribunals And Holds That Regulators Are Not Required To Allow Utilities To Pass On Costs Of Collective Agreements

On September 25, 2015, the Supreme Court of Canada released a 6-1 decision that has far-reaching implications for provincial energy tribunals and administrative tribunals generally, and which may also impact collective bargaining between regulated entities and their unions.

The case, Ontario (Energy Board) v. Ontario Power Generation Inc., 2015 SCC 44, arose from the decision of the Ontario Energy Board (OEB) not to allow Ontario Power Generation (OPG) to recover through rates $145 million in compensation costs paid to its unionized workers under their collective agreements. The Supreme Court's ruling focused on two important issues: (i) the scope of the OEB's discretion to set just and reasonable rates and (ii) the right of tribunals to participate in appeals of their own decisions.

On the first issue, the majority reaffirmed the broad discretion of energy regulators to set rates using the tools and methodologies that, in light of their expertise, they consider appropriate in the circumstances. In this case, the OEB disallowed the compensation costs on the basis that OPG's cost structure was excessive when compared to peer utilities and companies that the OEB used as benchmarks. In the opinion of the majority, this approach was consistent with the OEB's statutory mandate to balance the interests of OPG shareholders and electricity consumers and to act as a "market proxy" by "emulat[ing] as best as possible the forces to which a utility would be subject in a competitive landscape". Significantly, the majority held that this mandate is not constrained, in the case of compensation costs, by the fact that those costs were determined through a collective bargaining process. Contrary to the position taken by OPG and its two unions, the Court found there is no "presumption of prudence" with respect to those costs, nor is there any requirement to consider the reasonableness of the costs only in the context of the circumstances that existed at the time the collective agreements were made.

The second issue may also have far-reaching and practical import for Canadian administrative tribunals. Rejecting the argument of OPG and its unions that the input of tribunals into appeals from their decisions should largely be restricted to addressing jurisdictional issues and providing clarifications, the Supreme Court majority articulated a more flexible approach. In determining the scope of tribunal participation in such appeals, relevant factors include whether the appeal would otherwise be unopposed and whether the tribunal's original ruling was adjudicative or regulatory in nature. In the majority's view, "the principles of finality and impartiality are [to be] respected without sacrificing the ability of reviewing courts to hear useful and important information and analysis". The majority concluded that the OEB had not acted improperly in defending the appeal of its own decision (i) because the rate proceeding and decision were regulatory in nature and (ii) because (practically speaking) no one else was likely to defend it. The majority also rejected OPG's and the unions' allegation that the OEB had engaged in impermissible "bootstrapping", in the sense of having sought to supplement a deficient decision with new arguments on appeal.

This case, the first energy regulatory appeal to be considered by the Supreme Court of Canada in nearly a decade, is likely to feature prominently in future editions of Canadian administrative law textbooks by virtue of its strong affirmation of the wide-ranging authority of the country's regulatory tribunals, both in terms of the approach they take in their own proceedings and in their capacity for defending their regulatory decisions on appeal. With respect to price-regulated monopolies and quasi-monopolies such as OPG, the decision may also influence bargaining in labour negotiations and could have favourable impacts for customers and consumers as a result.

Stikeman Elliott litigators Glenn Zacher, Patrick Duffy and James Wilson acted for the OEB in its successful appeal from the adverse Ontario Court of Appeal ruling.

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