In June 2020, the Court of Appeal of Manitoba released its decision in Manitoba (Hydro-Electric Board) v Manitoba (Public Utilities Board)^[1] and overturned a utility board directive creating a special rate class for on-reserve First Nations in Manitoba.

While the court’s decision ultimately turned on an interpretation of four intertwined Manitoba statutes, it raises the fascinating question of how long-standing principles of utility regulation should be interpreted and applied in light of the recognized need to advance reconciliation between Indigenous and non-Indigenous peoples.

As discussed below, the court’s decision to overturn the special rate class demonstrates that efforts to further reconciliation with concrete action can run aground on the utilitarian principles of rate regulation. This outcome is sure to reprise long-standing disputes about the appropriate role of utility regulators vis-à-vis the government in setting and implementing social policy objectives.

BACKGROUND

Manitoba Hydro is a Crown corporation with a monopoly over the provision of power in Manitoba. Under subsections 39(2.1) and 39(2.2) of The Manitoba Hydro Act (the “Hydro Act”), the rates that Manitoba Hydro charges customers must be “the same throughout the province” and Manitoba Hydro is prohibited from classifying customers based “solely on the region of the province” in which they are located.^[2] Subsection 43(3) of the Hydro Act states that the funds of Manitoba Hydro “shall not be employed for the purposes of the government.”^[3]

The rates that Manitoba Hydro charges customers are subject to review by the Public Utilities Board (PUB) under section 25 of The Crown Corporations Governance and Accountability Act^[4] (the “Crown Act”) and the Public Utilities Board Act^[5] (the “PUB Act”). The PUB’s mandate under section 77 of the PUB Act is to fix just and reasonable rates. Section 25 of the PUB Act provides that in setting Manitoba Hydro’s rates the PUB “may take into consideration” a range of specific factors, including “any compelling policy considerations” and “any other factors” that the PUB considers relevant to the matter.^[6]

In 2016, Manitoba enacted The Path to Reconciliation Act^[7] (the “PTRA”) that defines reconciliation with Indigenous peoples and that aims to “promote measures to advance reconciliation” across government.^[8] The PTRA identifies specific principles that the government must have regard for to advance reconciliation, including the need for “concrete and constructive action” to improve the relationships between Indigenous and non-Indigenous peoples.^[9]

These four statutes — the Hydro Act, the Crown Act, the PUB Act and the PTRA — all played a role in the PUB’s consideration of a General Rate Application filed by Manitoba Hydro seeking approval for, among other things, a 7.9 per cent general rate increase for all customer classes effective April 1, 2018.^[10]

The PUB unanimously denied the proposed increase and instead ordered a 3.6 per cent average revenue increase. In addition, by way of a directive, a majority of the PUB ordered Manitoba Hydro to create a new rate class — the First Nations On-Reserve Residential customer class — that was to receive a zero percent increase.^[11] The PUB stated the directive was in response to the degree of poverty on reserves and was consistent with the principle of reconciliation defined in the PTRA.^[12]

One member of the PUB panel dissented on the directive to create an on-reserve class. The dissenting member opined that the PUB’s directive was a departure from long-standing principles of utility regulation and that the PUB lacked jurisdiction to create a discriminatory customer class based on regions of the province.^[13]

THE ARGUMENTS ON APPEAL

After an unsuccessful application before the PUB to vary the directive, Manitoba Hydro appealed the PUB’s directive to the Manitoba Court of Appeal. The PUB actively participated in Manitoba Hydro’s appeal of its decision^[14] and the Consumers’ Association of Canada (CAC) and the Assembly of Manitoba Chiefs (AMC) intervened in support of the PUB’s directive.

The issues on appeal centered on whether the PUB had the jurisdiction to order Manitoba Hydro to create the on-reserve class and if it erred by intruding into social policy.

Manitoba Hydro argued that the PUB exceeded its jurisdiction in creating a new rate class and that the on-reserve class breached the prohibition in subsection 39(2.2) of the Hydro Act against creating classes based solely on the region of the province in which the customer is located. In support of its appeal, Manitoba Hydro relied upon the legislative history of subsections 39(2.1) and 39(2.2), which demonstrated that it was enacted to equalize rates among residential customers across the province. Prior to its enactment, rural and remote customers had paid more for the provision of power supplied by Manitoba Hydro.

Manitoba Hydro also asserted that the PUB had impermissibly intruded in social policy and erred by causing Manitoba Hydro to expend funds for the purposes of poverty reduction (a government purpose) in contravention of subsection 43(3) of the Hydro Act.

The PUB, supported by the CAC and AMC, asserted that it had broad jurisdiction under the PUB Act with respect to its review of rates charged by Manitoba Hydro and was empowered to consider social policy issues such as energy affordability in Manitoba Hydro’s rates. The PUB argued that the on-reserve class is not “solely based” on the region of the province, as it is defined by specific class members — members belonging to Manitoba First Nations, being residential customers and living on reserve. AMC argued that the PUB’s directive was consistent with the PTRA.

THE COURT’S DECISION

The Court of Appeal granted Manitoba Hydro’s appeal and overturned PUB’s directive creating an on-reserve class. The court’s decision can be broken down into four key points.

First, the court drew upon the Supreme Court of Canada’s recent decision in Canada (Minister of Citizenship and Immigration) v Vavilov^[15] to select the standard of correctness for its review of the PUB’s decision.^[16] The court held that all of the grounds of appeal advanced by Manitoba Hydro involved questions of jurisdiction, statutory interpretation and law and thus were reviewable for correctness.^[17]

Second, the court sided with the respondents that the PUB has the jurisdiction to review Manitoba Hydro’s customer classifications to ensure they are not unjust or unreasonable. In the court’s view, the setting of customer classifications is an “inherent part of the setting of rates.”^[18]

Third, despite finding that the PUB could review Manitoba Hydro’s customer classifications, the court found that the PUB had violated the statutory limits set out in the Hydro Act when exercising its jurisdiction to create the on-reserve class. In particular, the court pointed to the restrictions on regional rates under subsection 39(2.2) of the Hydro Act.^[19] In the court’s view, it was significant that the PUB had recognized in prior decisions that it could create customer classes provided that no geographic limitations were imposed on such a class.^[20]

A key question tackled by the court was whether a reserve constituted a specific geographic region in the province.^[21] In this regard, the court noted that reserves are defined as “tract[s] of land” under subsection 2(1) of the Indian Act.^[22] A pivotal point in the court’s reasoning was that, 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.”^[23] In the court’s view, this demonstrated that “the defining circumstance for class membership is geographic location, not poverty or treaty status.”^[24]

In obiter, the court expressed its concern that “[h]owever well-intentioned, it cannot be just and reasonable for disadvantaged individuals on reserve to pay a lower price than similarly disadvantaged individuals located…elsewhere in the province.”^[25]

Fourth, the court held that the PUB exceeded its jurisdiction and violated the prohibition in subsection 43(3) of the Hydro Act against the use of Manitoba Hydro funds for government purposes.^[26] Interestingly, the court held that the PUB is entitled to consider social policy, including bill affordability and purposes underlying the PTRA, but that 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 revenue to alleviate such conditions.”^[27] On that basis, the court concluded that the PUB’s directive entered into a realm that is reserved for federal and provincial governments.^[28]

OBSERVATIONS

The court’s decision in this case raises a number of interesting considerations for those practicing in the area of utility regulation.

The court’s ready adoption of a correctness standard for reviewing the PUB’s decision, as directed by the Vavilov decision, is notable as the key that unlocked the door to a more taxing review of the PUB’s reasoning by the court.^[29] The analysis stands in stark contrast to the high levels deference that reviewing courts were providing to utility regulators interpreting their home statutes (or those closely connected to the regulator’s functions) in the pre-Vavilov era. With the exception of the PTRA, all of the statutory provisions considered in this case were closely connected to the PUB’s functions and its interpretation of those provisions would have been entitled to deference pre-Vavilov.

The court’s decision on whether the PUB could create an on-reserve class turned largely on a provision specific to Manitoba Hydro that prohibited customer classification based on geographic location. The court recognized the legitimate role of social policy in rate-setting, but ultimately that could not overcome the very specific language of subsection 39(2.2) of the Hydro Act. While an argument could be made that the PUB’s directive was motivated by factors other than regional discrimination, its effect was undoubtedly to create a distinction between classes based solely on geographical location, as illustrated by the court’s comments on differential treatment of similarly situation on-reserve and off-reserve First Nations members.

However, while this point alone would have been dispositive of the appeal, it is notable that the court continued into a detailed discussion on whether the PUB had intruded into the realm of the federal and provincial governments. It is the court’s discussion of this issue that is of most interest to those practicing in the area of utility regulation. Although the court’s reasoning was anchored in the language of subsection 43(3) of the Hydro Act, it was not limited to that provision and the court explored more general principles on the role of social policy in utility regulation and its consideration in other provinces.^[30] The court ultimately gave an unmistakable message that resonates beyond the specific Manitoba statutes at issue — social policy is best left to elected government and is not within the purview of utility regulators.

On this point, the court seems to have to come to a curious conclusion, particularly as it concerns the need to pursue the reconciliation of Indigenous and non-Indigenous peoples in Canada. The court stated that the PUB, under legislation enacted by an elected government, was “entitled to consider” social policy considerations (including bill affordability and the purposes of the PTRA). Yet the court effectively held that PUB was not entitled to act on those considerations because, if it were to do so, that would be intervening in the realm of the policy reserved for federal and provincial governments.^[31] This reasoning begs the question: what is the point of directing a utilities regulator to “consider” social policy if it cannot act to address such considerations? This discrepancy is particularly notable in the context of the PTRA which, as noted above, includes a principle that calls upon government to take “concrete and constructive action” to further reconciliation.

The result of the court’s decision is clear — the PUB cannot create a special on-reserve class. What is less clear is whether the PUB could create a special class for both on-reserve and off-reserve First Nations (perhaps even incorporating an income-tested threshold). Such a class would not offend subsection 39(2.2) of the Hydro Act and arguably “considers” social policy and the principles of the PTRA. However, it appears that such a class would still run afoul of the principles articulated by the Court of Appeal in this decision. In light of this outcome, it is reasonable for one to question whether the long-standing principles of utility regulation (often given reverential status by practitioners) should prevail when they collide with statutorily-endorsed principles of reconciliation.

* Patrick Duffy is a partner in the Toronto Office of Stikeman Elliott LLP and is co-head of the firm’s Projects and Infrastructure practice.

1. 2020 MBCA 60 [Court of Appeal Decision].
2. The Manitoba Hydro Act, CCSM c H190, ss 39(2.1), (2.2).
3. Ibid, s 43(3).
4. CCSM c C336, s 25.
5. CCSM c P280.
6. Supra note 4, ss 25(4)(a)(viii)–(ix).
7. CCSM c R30.5.
8. Ibid, ss 1(1), 3(2).
9. Ibid, s 2.
10. Court of Appeal Decision, supra note 1 at para 1.
11. Ibid at para 2.
12. Ibid at para 19.
13. Ibid at para 21.
14. See Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44 at paras 41–62 for a discussion of an administrative tribunal’s standing to participate in an appeal or review of its own decisions.
15. 2019 SCC 65.
16. Court of Appeal Decision, supra note 1 at paras 23–24
17. Ibid at para 27.
18. Ibid at paras 40–41.
19. Ibid at para 47.
20. Ibid at para 50.
21. Ibid at para 51.
22. RSC 1985, c I-5.
23. Court of Appeal Decision, supra note 1 at para 53.
24. Ibid at para 53.
25. Ibid at para 55.
26. Ibid at para 72.
27. Ibid at paras 81–85.
28. Ibid at para 87 (In an interesting aside, the court noted at para. 93 that the directive may actually, in some cases, amount to a subsidy to the federal government as the federal government pays for the hydro costs of persons living on reserve who are in receipt of employment income assistance).
29. Other post-Vavilov decisions involving utility regulators include Banfield v Nova Scotia (Utility and Review Board), 2020 NSCA 6, Planet Energy (Ontario) Corp. v Ontario Energy Board, 2020 ONSC 598 and Enbridge Gas Inc v Ontario Energy Board, 2020 ONSC 3616.
30. The court cases considered by the court included Dalhousie Legal Aid Service v Nova Scotia Power Inc., 2006 NSCA and Advocacy Centre for Tenants-Ontario v Ontario Energy Board, 293 DLR (4^th) 684, [2008] OJ No 1970 (QL), and British Columbia Old Age Pensioners’ Organization v British Columbia Utilities Commission, 2017 BCCA 400.
31. While the court’s reasoning was limited to the redirection of Manitoba Hydro’s funds to serve such purposes, it is difficult to conceive of a scenario in which the PUB could effectively address social policy considerations without somehow affecting the funds of Manitoba Hydro.