Rates and Reserves: Manitoba (Hydro-Electric Board) v, Manitoba (Public Utilities Board), 2020 MBCA 60

The Supreme Court of Canada’s decision in Vavilov v. Canada (Citizenship and Immigration), 2019 SCC 65 made what seemed to be dramatic changes to the law relating to statutory appeals. Deference had previously come to reign supreme, even where an appeal to the courts from an administrative decision-maker had been provided by the legislature. Vavilov effected an about-face, holding that the appellate standards of review set out in Housen v. Nikolaisen, 2002 SCC 33 would henceforth be applicable in such circumstances: correctness for extricable questions of law; palpable and overriding error for everything else. The appearance was of a dramatic change, eliminating deference on questions of law in the context of statutory appeals.

As I have observed in my “Vavilov Hits the Road” post, appearances may be deceptive. Palpable and overriding error is a deferential standard, after all. And deference may still play a further role, inasmuch as the expertise of an administrative decision-maker may motivate an appellate court to classify the issue appealed from as a mixed question of fact and law (and thus subject to the palpable and overriding error standard) or to give weight to the administrative decision-maker’s interpretation of law (and perhaps even endorsing it).

However, there are some situations where it is patently obvious that Vavilov has effected a significant change. These are where the statute provides for an appeal on a question of law or jurisdiction. Skilful advocacy is required to get within a limited appeal clause (see e.g. Bell Canada v. British Columbia Broadband Association, 2020 FCA 140). But once an appellant has succeeded in demonstrating that their appeal falls within the clause, arguments for deference are likely to fall on deaf ears. The most prominent example so far is the companion case to Vavilov, Bell Canada v. Canada (Attorney General), 2019 SCC 66 (on which see Mary Liston).

Another recent example is the decision of the Manitoba Court of Appeal in Manitoba (Hydro-Electric Board) v Manitoba (Public Utilities Board) et al, 2020 MBCA 60. Here, the Public Utilities Board sought to create a special zero electricity rate for First Nations residential customers on reserves, looking to alleviate poverty in one of the province’s most disadvantaged groups. But the Court of Appeal held that the Board erred in concluding that it had the power to create a differential rate for First Nations customers.

The Court of Appeal’s analysis was based on two building blocks, one about the Board’s ability to create a class of customers who would benefit from a reduced rate, one about the extent to which the Board could wander into the realm of social policy-making. Both building blocks would have proved much more brittle on a deferential standard of review.

First, s. 39(2.1) of the Manitoba Hydro Act, CCSM c H190 provides that “The rates charged for power supplied to a class of grid customers within the province shall be the same throughout the province”. For further clarity, s. 39(2.2)(b) adds that “customers shall not be classified based solely on the region of the province in which they are located or on the population density of the area in which they are located” (my emphasis). Creating a special rate for First Nations, based on their location on reserves, fell outside the scope of s. 39:

Although the PUB created the on-reserve class to address poverty concerns, treaty members who do not reside on reserve are not eligible, even if they are living in similar circumstances. Clearly, the defining circumstance for class membership is geographic location, not poverty or treaty status. In my view, the PUB erred in law when it created an on-reserve class based solely on a geographic region of the province in which certain customers are located. Regardless of the considerations that the PUB factored into its decision, such as poverty and/or bill affordability, the result of the directive was the creation of a customer class that contravened section 39(2.2)(b) of the Hydro Act (at paras. 53-54).

In defence of the Board, I would observe that the best need not be made the enemy of the good. Striking a rate for members of First Nations, regardless of their location within the province, would be administratively difficult if not impossible (at paras. 55, 91). That the Board was not able to proceed with surgical precision should not necessarily mean that no procedure could be undertaken at all.

Can my defence of the Board be grounded in the language of the statute? I think it can: s. 39(2.2) prohibits making a class where geographical location is the sole criterion. But the Board was evidently not motivated solely by geography in setting a special rate for First Nations. Rather, the geographical locations — reserve lands — were convenient proxies for the alleviation of disadvantage the Board wished to achieve.

The legislative history indicated that the goal of s. 39(2.1) is to prevent the creation of rural and urban classes to which different rates would apply (at paras. 47-50). (Indeed, in Ontario, rural customers often pay more for electricity than city dwellers.) This point cuts both ways, however: on the one hand, it indicates that rate equalization was the objective underlying s. 39(2.1); but on the other hand, it indicates that the concern of s. 39(2.1) is with the urban/rural divide, not with the treatment of First Nations.

In all events, had the Board’s decision been reviewed on a standard of reasonableness, the result might well have been different. It is at least arguable that s. 39(2.2) can reasonably bear the Board’s interpretation.

Second, s. 43(3) of the Act provides for the following limitation on the use and allocation of Manitoba Hydro’s funds:

Except as specifically provided in this Act, the funds of the corporation shall not be employed for the purposes of the government or any agency of the government as that expression is defined in The Civil Service Act, other than the corporation, and the funds of the government shall not be employed for the purposes of the corporation except as advances to the corporation by the government by way of loan or as a result of a guarantee by the government of indebtedness of, or assumed by, the corporation or liability for the repayment of which is an obligation of the corporation.

The Court of Appeal accepted that the Board had broad jurisdiction under the Act to consider “social policy and any other factors it considers relevant in fulfilling its mandate” (at para. 81), as befits a body required to set rates which are just and reasonable all things considered. But in pursuing the goal of poverty alleviation, the Board failed to respect the limitation contained in s. 43(3):

[T]he ability to consider factors such as social policy and bill affordability in approving and fixing rates for service does not equate to the authority to direct the creation of customer classifications implementing broader social policy aimed at poverty reduction and which have the effect of redistributing Manitoba Hydro’s funds and revenues to alleviate such conditions. A plain and purposive reading of section 43(3) of the Hydro Act evidences that funds and revenue of Manitoba Hydro are not to be used by the government to serve any purpose other than that of Manitoba Hydro (at paras. 85-86).

Whereas the Board preferred to follow the majority of the Divisional Court in Advocacy Centre For Tenants-Ontario v Ontario Energy Board (2008), 293 DLR (4th) 684, the Court of Appeal found Swinton J’s dissent more persuasive.

Again, it is at least arguable that s. 43(3) does not stand in the way of making a special rate for customers residing on First Nations lands. Section 43(3) can be read more narrowly but no less purposively, as an anti-commandeering principle which prevents the government from directing Manitoba Hydro’s resources to its political ends. Nothing of the sort was happening here. Rather, the Board was attempting to achieve the broad goal of poverty alleviation, in the context of a nationwide effort to promote reconciliation between Canada and its First Nations (cf at para. 87).

Furthermore, it is unrealistic to suggest that rate-setting cannot have a policy component: “It must be recognized that the rate-setting function has a policy component and is based on the circumstances as presented to the Board from time to time, circumstances that will vary” (CMRRA-SODRAC Inc. v. Apple Canada Inc., 2020 FCA 101, at para. 17). The Court of Appeal’s analysis suggests that the rate-setter can drift into the impermissible realm of policy. However, given the factually- and policy-suffused haze in which rate decisions are made, it will be difficult if not impossible to determine when the rate-setter is coming close to the edge of its allotted territory. A plausible outcome is that the Board will, in the future, consciously limit the broad discretion the legislature saw fit to grant to it.

This is a fascinating case, and notwithstanding my critical analysis, the Court of Appeal’s points about the anomalies created by the Board’s rate are well taken. I am not persuaded by the Court of Appeal’s analysis, but I can certainly acknowledge that it falls within the range of reasonable outcomes. That, however, is the point: in a deferential regime, the outcome in this case would quite probably have been different. It is true that Canadian courts have policed the boundaries of rate-setting authority with some vigour (see e.g. ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4, [2006] 1 SCR 140). But the pre-Vavilov law was very favourable to expert economic regulators. This case demonstrates that Vavilov is much less friendly, at least where there is a statutory right of appeal.

This content has been updated on October 13, 2020 at 05:18.