Cape Breton Explorations Ltd v Nova Scotia (Attorney General)

The Nova Scotia Utility and Review Board (UARB) concluded the $93 million investment of Nova Scotia Power Incorporated (NSPI) in a wind power project called South Canoe was a capital expenditure that should be included in NSPI’s rate base.1 South Canoe was one of three Independent Power Producer (IPP) projects approved by Nova Scotia’s independent Renewable Energy Administrator (REA). Cape Breton Explorations Ltd. (CBE), a company that had unsuccessfully proposed its own IPP project, appealed the decision of the UARB, as well as the UARB’s decision to allow NSPI to claim confidentiality in certain documents, to the Nova Scotia Court of Appeal. The Court rejected the challenge to the UARB’s ruling on confidentiality of documents but found that the UARB’s conclusion that NSPI’s investment should be included in NSPI’s rate base was unreasonable and quashed the UARB’s decision.2

Legislative Framework

Under the Nova Scotia Electricity Act3 and its Renewable Electricity Regulations4, at least twenty-five percent of the electricity supplied by NSPI in 2015 was required to be renewable electricity.5 Roughly half (300 GWh) was required to come from IPPs. By definition, IPPs are generators of renewable low-impact electricity of which no more than 49 per cent of the voting securities are held by a public utility.6 The REA holds a competitive process to determine the IPPs from whom NSPI is required, by 1 subsection 4B(12) of the Electricity Act, to purchase renewable electricity using a standard Power Purchase Agreement (PPA) approved by the UARB. Section 4B(13) of the Electricity Act requires the UARB to allow a public utility “to recover from its rate base the costs of the public utility’s contracts referred to in subsection (12) on the basis approved by the Board (the UARB) under the Public Utilities Act”.

Section 35 of the Public Utilities Act reads as follows:

No public utility shall proceed with any new construction, improvements or betterments in or extensions to its property used or useful in furnishing, rendering or supplying any service which requires more than the expenditure of more than two hundred and fifty thousand dollars without first securing the approval thereof by the Board.7

Decision of the UARB

The REA approved the bid of Oxford for a 78MW wind farm and the bid of Minas Basin for a 24MW wind farm, which together constituted the South Canoe Wind Project. For its investment of $93 million, NSPI owned half of the project’s 34 turbines representing 49 per cent of the project’s assets. It applied to the UARB to have this investment approved as a capital expenditure recoverable from ratepayers under section 35 of the Public Utilities Act.

CBE challenged the jurisdiction of the UARB to consider NSPI’s application, arguing on the basis of 4B(13) of the Electricity Act that ratepayers could only be charged for the electricity procured from an IPP, not for the cost of the assets used to produce that electricity.8 It argued section 35 of the Public Utilities Act only applied to electricity produced by NSPI, not to electricity NSPI procured from an IPP.

The UARB granted NSPI’s application. It interpreted subsection 4B(13) of the Electricity Act as stating that NSPI was to recover its IPP-related costs, not only the cost of purchasing electricity from an IPP.9 It reasoned that NSPI’s investment in IPPs would otherwise, contrary to “a fundamental principle of public utility regulation”, be unregulated, allowing it to earn unregulated profits from ratepayers which could potentially result in profits in excess of NSPI’s allowed rate of return.

The UARB then found that section 35 of the Public Utilities Act applied.10 It relied on the statutory definition of “service” as including “the production, transmission or furnishing to or for the public by a public utility […] of electrical energy”. It also relied on the statutory definition of a “public utility” as including any person owning, operating, managing or controlling “any plant or equipment for the production, transmission, delivery or furnishing of electrical power or energy […] either directly or indirectly to or for the public”. According to the UARB, the assets owned by NSPI were being used by NSPI either directly or indirectly to provide a service to the public. The fact that the electricity in question was to be generated by an IPP was “immaterial.”

Decision of the Court of Appeal

On CBE’s appeal to the Nova Scotia Court of Appeal, CBE, NSPI and Justice Farrar, writing for the Court, all agreed the standard of review was reasonableness.11 Despite this, the UARB’s decision was subjected to a review that was almost certainly as extensive and detailed as review for correctness would have been. Justice Farrar concluded that the UARB’s decision in favour of NSPI was outside of the range of possible outcomes – i.e. the range of outcomes that the UARB could reasonably reach – because it rested on multiple errors in interpreting subsection 4B(13) of the Electricity Act and section 35 of the Public Utilities Act.

On subsection 4B(13), the UARB’s error was interpreting it as providing for NSPI’s recovery of the cost of its investment into South Canoe even though the provision only referred to the “the costs of the public utilities contracts referred to in subsection (12)”, i.e. the cost of purchasing electricity from an IPP under a PPA. In quoting the subsection in a crucial paragraph of its ruling, the UARB had omitted the words which qualified the subsection’s reference to costs. This, wrote Justice Farrar, “completely alters the meaning of the subsection”.12

On section 35 of the Public Utilities Act, the Court said it was clear on a “plain reading” of the section,13 which only applied to expenditures on “property used or useful in furnishing, rendering or supplying any service,” that IPP-generated electricity was a service provided by the IPP and not NSPI. The error of the UARB in reaching the opposite conclusion was multi-faceted.

First, it resulted in NSPI having it both ways: it could count electricity from South Canoe as counting towards its obligation to purchase 300 GWh of renewable electricity from IPPs and also as a service it provided to the public for the purpose of recovering the cost of its investment from ratepayers.14

Second, because section 35 would clearly not apply if NSPI owned shares of an IPP company, there could “be no public policy justification” for interpreting it as applying where NSPI owned assets instead of shares.15 On this point, the Court questioned whether the South Canoe Project, given 49 per cent ownership of assets by NSPI, should have been treated by the REA as an IPP in the first place. This was so even though the definition of IPP in the Renewable Electricity Regulations only limited public utility IPP share ownership and only above the 49 per cent level, the level of NSPI’s ownership of assets.

Third, the Court found that the “plain reading” conclusion that IPP-generated electricity was a service provided by the IPP and not NSPI was supported by a deeper and more contextual look at the broader legislative context.16 It was supported by the definition of an IPP, which required an IPP to be “a renewable low-impact electricity generator […] that sells electricity […] to public utilities for retail sales to the utilities’ customers”. This showed that NSPI was a conduit between IPPs and their customers. The plain reading interpretation was also supported by the grounding of the Public Utilities Act on the cost of service model of regulation, under which utilities are compensated for the cost of producing the electricity they sell. For the Court, this reinforced the conclusion that compensation in relation to electricity purchased from an IPP was a matter exhaustively governed by the Electricity Act and Electricity Regulations. Meanwhile, NSPI’s ownership of turbines at South Canoe did not matter to the question of the applicability of the Public Utilities Act for three reasons:17 one, because under a PPA, the electricity delivered to NSPI would come from turbines owned and turbines not owned by NSPI without differentiation; two, because the definition of public utility referred to a person owning assets and not to a person owning assets with another; and three, because applying the Public Utilities Act via NSPI’s ownership of assets would be equivalent to regulating an IPP as a public utility, whereas IPPs were, as retail suppliers, expressly excluded from the definition of public utility by the Electricity Act.

The Court also found the UARB’s interpretation of section 35 to be contrary to the intentions of the legislature in amending the Electricity Act to put the procurement of electricity from IPPs into the hands of the REA.18 This intention was to establish a complete code for the procurement of IPP-generated electricity that was separate from and parallel to regulation of NSPI under the Public Utilities Act. In this context, the provision made by 4B(13) of the Electricity Act for recovery by NSPI of its cost of procuring IPP-generated electricity had to be interpreted as exhaustive of NSPI’s entitlement to recover IPP-related costs. Three additional considerations reinforced this conclusion:

  • the Public Utilities Act was silent on renewable energy whereas regulations under the Electricity Act dealt with NSPI’s recovery of its costs in producing renewable electricity as well as its costs in procuring it;19
  • the Electricity Act and regulations could easily have been written to expressly provide for recovery by NSPI of the cost of IPP assets but they were not;20
  • and the definition of an IPP as an entity that sells electricity to a utility for resale to the public showed an intention that the public would pay by purchasing this electricity rather than by having the cost of production incorporated into the rate base of the purchasing utility.21

The conclusion that 4B(13) was meant to be exhaustive was also supported by the language of Nova Scotia’s Renewable Energy Strategy. It described the production of renewable electricity by NSPI under UARB oversight and procurement of electricity from IPPs through a competitive bidding process conducted by the REA as parallel processes for ensuring best value to ratepayers in the implementation of renewable electricity standards.22

Finally, the Court dismissed the UARB’s concern that the non-applicability of section 35 would allow NSPI to make unregulated profits.23 It invoked earlier UARB decisions requiring NSPI to carry the risk of assets it had acquired to show that neither the Public Utilities Act or the “fundamental principle of utility regulation” precluded the owning of assets outside of rate base. Unregulated profits on such assets were not a problem, according to the Court, because “it is not the ratepayers’ money at stake; the ratepayers do not bear the risk of loss so they do not receive the benefit of any gains”.24 Moreover, the UARB’s consequentialist interpretation of section 35 was invalid because it contravened subsection 4B(13) of the Electricity Act, departed from a harmonious interpretation of the broader legislative framework and ignored the legislative intention to frame cost of service regulation by the UARB and competitive bidding conducted by the REA as alternative and parallel regulatory mechanisms.25


Following the Supreme Court of Canada’s reformulation of judicial review of the substance of administrative decision-making in Dunsmuir v New Brunswick,26 the decision of the Nova Scotia Court of Appeal in this case is one of many in which reviewing courts quickly and easily conclude, often with the agreement of the parties, that the standard of review is reasonableness. There is however not a hint of deference in how that standard of review was applied to the UARB’s decision. Although the Court rejected CBE’s written submission, which was not pressed in oral argument, that the question in issue was a jurisdictional question to be reviewed under Dunsmuir for correctness,27 it proceeded to review the decision of the UARB for reasonableness much as it would have reviewed it for correctness. It went well beyond asking itself if the UARB had justified its interpretation of the applicable legislation. It instead conducted its own independent and extensive analysis to justify the interpretation the UARB should have come to. In other words, it reviewed the UARB’s decision much as the Supreme Court of Canada reviewed the decisions in ATCO Gas and Pipelines Ltd v Alberta (Energy and Utilities Board)28 and in Barrie Public Utilities v Canadian Cable Television Assn29 for correctness before Dunsmuir made reasonableness the presumed standard of review in such regulatory cases. This shows the limited difference that Dunsmuir and the choice of standard of review can sometimes have in energy regulation even if it does result in review for reasonableness rather than correctness.

It can be speculated that this is more likely because of Dunsmuir’s success in making the applicability of reasonableness so clear that it is often agreed to or decided with minimal analysis, as it was in this case. This avoids the need for a discussion of the factors warranting deference which may, if discussed, influence how review for reasonableness is then conducted. For example, in this case, the agreement of the parties that reasonableness was the standard of review meant there was no need for any discussion of the specialized expertise of the UARB, the polycentric nature of its mandate, or the specific nature of the legal question decided by the Board as a home and connected statute question as distinct from a general question of law. Perhaps discussion of such factors in the choice of a standard of review helps to ensure they are also taken into account in determining how review for reasonableness is calibrated to its context. At a minimum, such discussion may help to ensure that such review involves at least some deference.

Another factor in this kind of case may be the thoroughness of the regulator’s explanation for their interpretations of legislation, especially when reaching counter-intuitive conclusions on legal questions that require more explanation and justification if they are to be found reasonable by non-expert judges. Leaving aside questions about the Court’s approach to reviewing for reasonableness, its analysis of the law applicable to NSPI’s application shows that the UARB’s decision relied on interpretations that would have been difficult to defend, even if they were not, as the Court suggested, impossible to defend. Yet the UARB’s reasoning on the crucial issue of the applicability of section 35 of the Public Utilities Act was brief and conclusionary. It did not extensively engage with the competing arguments such as those based on the view that the provisions on procurement of renewable electricity from IPPs found in the Electricity Act and Electricity Regulations were intended to be exhaustive. Of course, under Newfoundland and Labrador Nurses Union v Newfoundland and Labrador (Treasury Board)30 and other decisions of the Supreme Court of Canada, it was not required to do so. But even allowing for the responsibility of courts, as emphasized in Newfoundland and Labrador Nurses, to supplement reasons given for a decision before subverting them, reasons for decision which do not fulsomely grapple with key arguments, especially on questions of law, give reviewing courts less to review than reasons that are proportionate to the issues they decide. They may thereby make it easier for courts to go beyond reviewing and into independent decision-making.

A related observation is that regulators should know from this and other cases that purely functional interpretations of legislation that do not fully engage with the text, context and purpose of the provisions in play will be vulnerable on review.31 In this case, the UARB’s reasoning came close to being that section 35 had to be applicable because consequences that departed from regulatory principles could follow if it was not applicable. The Court did not accept that the consequences the UARB feared were real ones but equally, it did not accept that the legislation could be interpreted to avoid them if it could not otherwise be so interpreted.

It is perhaps telling that the regulatory rationale for the UARB’s interpretation of section 35 is the very point on which the Court’s critique of the UARB is most questionable. In rejecting the UARB’s concern about allowing NSPI to own assets outside of its rate base, the Court did not consider the difference between assets which were needed to produce electricity and assets NSPI used in producing electricity but purchased for broader business purposes. More broadly, in framing the issues in terms of UARB’s willingness to allow NSPI to have it “both ways,” the Court did not consider the benefits that ratepayers received from having section 35 applied to NSPI’s investment in South Canoe. Specifically, it did not consider that while this would benefit NSPI by ensuring its recovery of its capital outlay, it would also benefit ratepayers by bringing the profit NSPI would earn on those outlays within the general limit on NSPI’s profit.

More broadly, the Court framed the issues of statutory interpretation without any apparent understanding of a wider factual context in which NSPI investment in IPP projects benefits ratepayers by reducing the cost of these projects by, for example, providing them with the benefit of NSPI’s lower borrowing costs. The significance of this is illustrated by the role that NSPI had played, prior to applying to have its investment in South Canoe added to its rate base, in saving other IPP projects by becoming an investor in them to ensure their financial viability.

This context may have been relevant for understanding the legislature’s choice to allow NSPI to own up to 49 per cent of entities involved in IPP projects, to place no limitation on NSPI ownership of IPP assets and to provide affirmatively for NSPI’s recovery of the cost of purchasing IPP electricity without expressly precluding NSPI recovery of its investment in IPP assets. The UARB would understand this context better than a reviewing court. It alluded to it but did not very fully explain it in ruling in favour of NSPI’s South Canoe application. The result may have been adjudication of CBE’s appeal that was less informed than would otherwise have been the case. More specifically, the result may have been a judicial review conducted with inadequate appreciation of the rationale for at least some deference for the UARB’s conclusions on a question of law it decided in favour of NSPI but also in favour of ratepayers.

* William Lahey, Associate Professor, Schulich School of Law, School of Health Administration and College of Sustainability, Dalhousie University.

  1. Re Nova Scotia Power Inc, Approval of a 2013 Capital Expenditure for the South Canoe Wind Project (Decision), 2013 NSUARB 92, accessed online with docket number M05416: <> [South Canoe Wind Project].
  2. Cape Breton Explorations Ltd v Nova Scotia (Attorney General), 2015 NSCA 33, online: <> [Cape Breton Explorations].
  3. Electricity Act, SNS 2004, c 25.
  4. Renewable Electricity Regulations, NS Reg 155/2010.
  5. Ibid at s 6.
  6. Ibid at s 3(1).
  7. Public Utilities Act, RSNS 1989, c 380, s 35.
  8. South Canoe Wind Project, supra note 1, at paras 1-4, 18-19, 64-65.
  9. Ibid at paras 78-79.
  10. Ibid at paras 87-91.
  11. Cape Breton Explorations, supra note 2 at paras 40-41.
  12. Ibid at paras 48-50 and specifically at para 53.
  13. Ibid at para 76.
  14. Ibid at paras 79-87.
  15. Ibid at paras 88-98.
  16. Ibid at paras 99-108.
  17. Ibid at paras 104-108.
  18. Ibid at paras 109-128.
  19. Ibid at paras 115-117.
  20. Ibid at para 118.
  21. Ibid at para 120.
  22. Ibid at paras 121-125.
  23. Ibid at paras 129-151.
  24. Ibid at para 147.
  25. Ibid at para 148.
  26. Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 SCR 190.
  27. Cape Breton Explorations, supra note 2 at paras 44-46.
  28. ATCO Gas and Pipelines Ltd v Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 SCR 140.
  29. Barrie Public Utilities v Canadian Cable Television Assn, 2003 SCC 28, [2003] 1 SCR 476.
  30. Newfoundland and Labrador Nurses Union v Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 SCR 708.
  31. Another case from which this lesson may be taken may be Canadian Human Rights Commission v Canada (Attorney General), 2011 SCC 53, [2011] 3 SCR 471, a case where the Canadian Human Rights Tribunal interpreted the Canadian Human Rights Act in such a way that authorizes the awarding of costs solely on the basis of invoking the principle that human rights legislation should be interpreted broadly and liberally and without engaging with the specific arguments that could be made against such an interpretation.

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