Discriminatory Regulations: TransAlta Generation Partnership v. Alberta, 2024 SCC 37

The Supreme Court of Canada’s decision in the Auer case (noted here) confirmed that the standard of review applicable to regulations is reasonableness: the judicial review analysis must be conducted under the Vavilov framework. Auer had a companion decision on discriminatory regulations: TransAlta Generation Partnership v. Alberta, 2024 SCC 37. In this decision dealing with the treatment for municipal tax purposes of obsolescent assets used by utility companies (so-called stranded assets) the Court emphasized a number of points.

First, at the risk of stating the obvious, discriminatory treatment must be identified: this is discrimination in the administrative law sense — drawing distinctions between persons or classes — rather than the constitutional law sense. Second, when it is alleged that regulations discriminate, the matter will be reviewed on the reasonableness standard. Third, this will involve an application of the principles of statutory interpretation to determine whether (a) the discrimination was expressly authorized or (b) authorized by necessary implication; if not, the regulations will be unlawful. Fourth, the court must go on to determine whether the regulations respect the relevant legal constraints set out in Vavilov.

TransAlta owns coal-fired electricity generation facilities in Alberta. Government policy in the province is to phase out coal-fired generation of electricity. Accordingly, in 2016, TransAlta and the provincial government entered into an agreement (an “Off-Coal Agreement”) that involved TransAlta ceasing to use those facilities by 2030 in exchange for “transition payments”. But then another question arose. TransAlta has to pay municipal taxes on its properties, including the coal-fired electricity generation facilities. These are defined as “linear property” under s. 284(1)(k) of the Municipal Government Act, RSA 2000, c M-26.

However, these properties are depreciating rapidly as coal-fired plants are being phased out. Is TransAlta therefore entitled to accelerate the depreciation of these facilities? The upshot would be that the assessed value of TransAlta’s facilities would be much lower for municipal taxation purposes.

Normally, a property owner can apply to an assessor for relief in these circumstances. But the Minister for Municipal Affairs had issued regulations under the MGA that specifically excluded properties subject to an Off-Coal Agreement from being able to claim additional depreciation. Was this lawful? Ultimately, yes, the Supreme Court held, affirming the unanimous view of the lower courts.

First, Côté J for a unanimous Supreme Court held that TransAlta had been discriminated against. The Court of Appeal had concluded that there was no discrimination between “similarly situated” persons, as the regulations at issue “apply to all coal-fired electrical power generation facilities in the province that are subject to off-coal agreements or legislation requiring the reduction or cessation of coal-fired emissions” (2022 ABCA 381, at para. 86). Côté J disagreed. The relevant class was owners of linear property: in that class, those who had entered into off-coal agreements were singled out. But for the regulations, TransAlta would have been able to apply to have the additional depreciation considered by a municipal assessor:

The Linear Guidelines discriminate against TransAlta and other parties to off‑coal agreements by singling them out as being ineligible to claim additional depreciation on the basis of the off‑coal agreements and to have the assessor consider that claim (see ss. 1.003(d) and 2.004(e)). Owners of linear property who are not parties to off‑coal agreements are eligible to make claims for additional depreciation and to have those claims considered by the assessor without exclusion.

…

The fact that the Linear Guidelines treat all parties to off‑coal agreements in the same way does not mean that they are not discriminatory. The Linear Guidelines treat all parties to off‑coal agreements in the same discriminatory way, as compared with owners of linear property who are not parties to off‑coal agreements. As explained, administrative discrimination arises when subordinate legislation expressly distinguishes among the persons to whom its enabling legislation applies (Keyes, at pp. 370‑71). The Linear Guidelines expressly distinguish between owners of linear property who are parties to off‑coal agreements and those who are not parties to such agreements, though both are subject to the MGA (at paras. 46, 48).

Second, Côté J applied the reasonableness standard, as presaged by Auer (at paras. 14-18), emphasizing that applying the standard to the lawfulness of regulations is “fundamentally an exercise of statutory interpretation to ensure that the delegate has acted within the scope of their lawful authority under the enabling statute” (at para. 17).

Third, Côté J held that the Minister was implicitly authorized to discriminate against TransAlta and other parties to off-coal agreements. To begin with, the Minister has “broad authority to make regulations establishing valuation standards for linear property, respecting the assessment of linear property, respecting the processes and procedures for preparing assessments and respecting any matter considered necessary to carry out the intent of the MGA” (at para. 52). Furthermore:

In establishing a valuation standard for linear property, the Minister is authorized to make regulations “respecting designated industrial property, including, without limitation, regulations respecting the specifications and characteristics of designated industrial property” (MGA, s. 322(1)(d.3)). The “specifications and characteristics” that the Minister sets out must be taken into account by the assessor when assessing the value of the property for taxation purposes (s. 292(2)(b)). This grant of authority is articulated in very broad terms — “without limitation” — and specifically empowers the Minister to identify and make regulations respecting the “specifications and characteristics” of industrial property. It is not possible to construe s. 322(1)(d.3) without contemplating the drawing of distinctions between types of properties on the basis of their specifications and characteristics (at para. 53).

Indeed, the raison d’être of the statutory scheme is to ensure that valuations are current, fair and equitable. This implies that the Minister must be able to discriminate because, otherwise, there is a risk that assessments will be “inappropriate” (at para. 54). Line drawing is inevitable and discrimination thus inherent in the statutory scheme: “where appropriate, the Minister must have authority to pronounce that certain specifications and characteristics are not relevant to an assessment, as he did in this case” (at para. 54). In most taxing regimes, it would seem, discrimination will inevitably be implicitly authorized, as differentiation is part and parcel of a functioning taxation programme (see here and here, though note the different outcome in Fishing Lake, where the discrimination was between persons rather than classes).

Fourth, Côté J assessed the regulations against the relevant legal constraints: “the next question is whether [the Minister] exercised that authority in a manner that is consistent with the scheme and purposes of the MGA” (at para. 55). In this case, as in Auer (noted here) the relevant constraints flowed from the statutory scheme. This is not to suggest that, in other cases, other Vavilovian constraints might not be relevant (see my comment on the Kanyinda case, for example). Here, however, the argument made by TransAlta was that failing to account for additional depreciation frustrated the purpose of the MGA: the assessed value of the facilities would be inaccurate even though the scheme was designed to ensure precisely that, accuracy. This argument failed because the Off-Coal Agreement offset TransAlta’s losses:

To deprive TransAlta of the ability to claim additional depreciation is also consistent with the MGA’s purpose of ensuring that assessments are fair and equitable. Since the transition payments already account for at least some loss of value resulting from the reduced life of TransAlta’s coal‑fired facilities, there would be a real risk of “double dipping” if TransAlta were able to receive additional depreciation for that same loss of value under the Linear Guidelines. That would not be fair or equitable (at paras. 58-59).

Now, one might wonder whether the relevant legal constraints will ever be breached if the discrimination is implicitly authorized. For discrimination to be implicitly authorized, it must be consistent with the statutory scheme and it would be unusual for discrimination to be implicitly authorized (and thus consistent with the statutory scheme) but nonetheless undermine the purposes of the statute. I think it is possible for this to happen but it is necessary to distinguish between discrimination in a general sense (interpretation) and a specific sense (application). Determining whether discrimination is authorized is a general question of interpretation: can the regulation-maker ever discriminate. Determining whether a particular type of discrimination caused by the application of the authority to discriminate is a specific question: has the regulation-maker reasonably discriminated in this instance? See further my note on Kanyinda. It does seem appropriate to observe, though, that consideration of whether discrimination is implicitly authorized will often overlap with consideration of whether a particular application of the authority to discriminate is justified.

A lingering question remains about the application of the authority to discriminate in this case is how ‘accurate’ the offsets have to be. It seems clear that TransAlta is not in exactly the same position it would have been but for the Off-Coal Agreement, so there appears to be a mismatch between what TransAlta received from the government and what it will ultimately have to pay in municipal taxes. For the Supreme Court, the fact that there was an offset appears to be enough. There was no consideration, however, of the proportionality of the offset. This could well be significant in dealing with stranded assets going forward. Similarly, in Auer, the fact that the regulations drew lines between different persons and classes that result in various unusual, arbitrary or absurd outcomes was not sufficient to render the regulations unlawful, even if in some cases there would be a disproportionate economic impact on some individuals. More could perhaps have been said in both Transalta and Auer on this particular point. In particular, even if there was authority to discriminate, shouldn’t the regulation-maker have to demonstrate that the use of the authority was justified, transparent and intelligible?

Nonetheless, the Supreme Court’s framework for assessing claims of regulatory discrimination under Vavilov is neat and tidy, requiring the court to ask three questions: was there discrimination; was it authorized and was the particular discrimination at issue consistent with the relevant legal constraints?

I hope to put together a short paper on this decision and the recent appellate authorities on discriminatory regulations. Comments and suggestions very welcome!

This content has been updated on November 13, 2024 at 17:05.