Enbridge Gas Distribution New Brunswick Decision

The Court of Appeal of New Brunswick issued its Decision in Enbridge Gas New Brunswick Limited Partnership et al vs. the Attorney General in and for the province of New Brunswick, 2013 NBCA 34, on May 3, 2013.  This decision was an appeal from a Decision of the New Brunswick Court of Queen’s Bench (Madam Justice Paulette Garnett) dated August 23, 2012.  The Enbridge parties (hereafter Enbridge) sought a declaration from the New Brunswick Queen’s Bench Trial Division that Section 4(1) of Regulation 2012-49 under the Gas Distribution Act, S.N.B. 1999, c. G-2.11 was invalid on the basis that it was ultra vires the Lieutenant-Governor in Council of the province of New Brunswick.

Enbridge Gas New Brunswick Limited Partnership is a regulated public utility which holds a general franchise for the distribution of natural gas in New Brunswick.  In January 2012, the New Brunswick Legislature amended the Gas Distribution Act (“GDA”).  Section 52(5)(a) of the amended GDA provides that the New Brunswick Energy and Utilities Board (“EUB”) “shall adopt the methods or techniques prescribed by regulation” when fixing rates and tariffs for the sale of natural gas in New Brunswick.  The New Brunswick Lieutenant-Governor in Council (“LGIC”) made a regulation, the rates and tariff regulation, which came into effect on April 16, 2012 (the “Regulation”).  Section 4(1) of the Regulation directed the EUB to apply the cost of service method or technique but also directed the EUB to apply a “revenue to cost ratio not exceeding 1.2:1” for any class of customers to which the cost of service method or technique was to be applied.  Section 4(1) further provided that the rates and tariffs determined according to the cost of service method or technique are not to exceed those rates that would have been fixed had the EUB adopted the pre-existing market based method or technique for rate setting which generally previously prevailed in the province of New Brunswick.

Enbridge sought a declaration that section 4(1) of the Regulation was ultra vires the LGIC.  Madam Justice Garnett phrased the question for the lower Court as follows: “Does the Regulation fall within the scope of the authorization provided by the statute and is it consistent with the general purposes of the governing statute?” Madam Justice Garnett found that sections 52 and 95 of the GDA were broad enough to authorize section 4(1) of the regulation, and she therefore found that section 4(1) was within the statutory authority of the LGIC.  The Court of Appeal stated that in coming to her decision Madam Justice Garnett “held that section 52(5)(a) must be construed broadly.”  The Court of Appeal also noted that Section 95 of the GDA which authorized the LGIC to adopt a regulation prescribing the methods the EUB must adopt when approving or fixing rates was for the purposes of the appeal assumed to have no substantive difference from section 52(5)(a) of the GDA.

On the appeal, the province of New Brunswick contended that the phrase “methods or techniques prescribed by regulation” should be interpreted broadly to cover all relevant considerations when it comes to fixing rates.  Such a broad interpretation would embrace matters such as the revenue to cost ratio.  Enbridge argued that the phrase “methods or techniques” has a limited meaning which embraces recognized methods for fixing rates.

The Court of Appeal relied upon the modern approach to statutory interpretation in noting that section 52(5)(a) of the GDA could not be read in isolation.  The Court of Appeal stated that the provision must be read in the context of the legislative scheme surrounding the EUB’s obligation to set “just and reasonable” rates.  Aided by the presumption of “internal coherence” and the presumption against “absurd results” the Court’s contextual analysis led it to the conclusion that it was not the New Brunswick’s Legislature’s intention that Section 52(5)(a) would be interpreted as broadly as the province contended.1 Rather to the contrary, the Court of Appeal found that the phrase “methods or techniques” has a technical meaning; one that is restricted in nature and in keeping with section 52 as a whole.  This led to the Court of Appeal’s ultimate finding that the directive set out in section 4(1) of the Regulation, requiring the EUB to apply a maximum revenue to cost ratio, was ultra vires the regulation-making authority of the LGIC.

The Court of Appeal concluded that in reviewing the GDA and the Regulation it was clear that the legislature was addressing itself to two known “methods or techniques” for fixing rates: (1) cost of service; and (2) marked based.  Thus, the court held that the phrase “methods or techniques” could not be reasonably interpreted to include the right of the LGIC to direct the EUB to apply, for example, a designated cost to service ratio.

The Court of Appeal allowed the appeal in part and declared that part of section 4(1) of the Regulation dealing with the “revenue to cost ratio” was beyond the regulation-making authority of the LGIC.

The Court of Appeal Decision continued a lengthy line of Canadian jurisprudence which holds that actions undertaken by the LGIC must be consistent with the intention of the overriding legislation under which they are made.  Notably in the regulation of technical industries such as electricity and natural gas, industry terminology and terms of art are, as noted by the Court of Appeal, better given the meaning “best understood by those who must interpret and apply the legislation within a regulated industry.”  Interestingly in this latter regard, although not determinative in the result, two Justices of the Court of Appeal noted that it was “at least arguable that the interpretive issue at hand could have been taken directly to the [EUB].”  The two Justices did conclude that it was best to leave that issue for another day, but stated that in their view the Court was left with the task of interpreting “technical” terms with which “the courts of the province cannot be presumed to have a familiarity.”

In the end result, the Court of Appeal concluded that the GDA as it read after the 2012 amendments continued to leave it to the EUB to determine what the revenue to cost ratio should be, and thus the directive in this regard in the Regulation was ultra vires the regulation-making authority of the LGIC.

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* David MacDougall, BSc, LLB, MBA, LLM is a Partner with the Atlantic Canadian law firm McInnes Cooper.

McInnes Cooper were counsel to Enbridge in both the Court of Queen’s Bench and Court of Appeal proceedings.

1 With respect to the issues of “internal coherence” and “absurdity”, the Court of Appeal noted in particular certain further statutory directives found in Subsections 52(5)(b), (c) and (d) of the GDA, and stated that if the province’s broad interpretation were to be adopted the LGIC could have simply relied on paragraph 52(5)(a) to adopt a regulation that also incorporated the matters in paragraphs (b)-(d).  The Court of Appeal concluded in this regard that “it makes no sense to take the first of the four fetters and interpret it in a manner that eliminates the need to impose the remaining three.”

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