Ontario Energy Board Appellant v. Ontario Power Generation Inc., Power Workers’ Union,, 2015 SCC 44

SUPREME COURT OF CANADA Citation: Ontario (Energy Board) v. Ontario Power Generation Inc., 2015 SCC 44, [2015] 2 S.C.R. 147 Date: 20150925 Docket: 35506 Between: Ontario Energy Board Appellant and Ontario Power Generation Inc., Power Workers’ Union, Canadian Union of Public Employees, Local 1000 and Society of Energy Professionals Respondents - and - Ontario Education Services Corporation Intervener Coram: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Gascon JJ.

Reasons for Judgment: (paras. 1 to 121) Dissenting Reasons: (paras. 122 to 161) Rothstein J. (McLachlin C.J. and Cromwell, Moldaver, Karakatsanis and Gascon JJ. concurring) Abella J. Ontario (Energy Board) v. Ontario Power Generation Inc., 2015 SCC 44, [2015] 2 S.C.R. 147 Ontario Energy Board Appellant v. Ontario Power Generation Inc., Power Workers’ Union, Canadian Union

of Public Employees, Local 1000 and Society of Energy Professionals Respondents and Ontario Education Services Corporation Intervener Indexed as: Ontario (Energy Board) v. Ontario Power Generation Inc. 2015 SCC 44 File No.: 35506. 2014: December 3; 2015: September 25.

Present: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Gascon JJ. on appeal from the court of appeal for ontario Public utilities — Electricity — Rate-setting decision by utilities regulator — Utility seeking to recover incurred or committed compensation costs in utility rates set by Ontario Energy Board — Whether Board bound to apply particular prudence test in evaluating utility costs — Whether Board’s decision to disallow $145 million in labour compensation costs related to utility’s nuclear operations reasonable — Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch.

B, s. 78.1(5) , (6) . Administrative law — Boards and tribunals — Appeals — Standing — Whether Ontario Energy Board acted improperly in pursuing appeal and in arguing in favour of reasonableness of its own decision — Whether Board attempted to use appeal to “bootstrap” its original decision by making additional arguments on appeal. In Ontario, utility rates are regulated through a process by which a utility seeks approval from the Ontario Energy Board for costs the utility has incurred or expects to incur in a specified period of time.

Where the Board approves of the costs, they are incorporated into utility rates such that the utility receives payment amounts to cover the approved expenditures. The Board disallowed certain payment amounts applied for by Ontario Power Generation (“OPG”) as part of its rate application covering the 2011-2012 operating period. Specifically, the Board disallowed $145 million in labour compensation costs related to OPG’s nuclear operations on the grounds that OPG’s labour costs were out of step with those of comparable entities in the regulated power generation industry.

A majority of the Ontario Divisional Court dismissed OPG’s appeal and upheld the decision of the Board. The Court of Appeal set aside the decisions of the Divisional Court and the Board and remitted the matter to the Board for redetermination in accordance with its reasons. The crux of OPG’s argument here is that the Board is legally required to compensate OPG for all of its prudently committed or incurred costs.

OPG asserts that prudence in this context has a particular methodological meaning that requires the Board to assess the reasonableness of OPG’s decision to incur or commit to costs at the time the decisions to incur or commit to the costs were made and that OPG ought to benefit from a presumption of prudence. The Board on the other hand argues that a particular prudence test methodology is not compelled by law, and that in any case the costs disallowed here were not committed nuclear compensation costs, but are better characterized as forecast costs.

OPG also raises concerns regarding the Board’s role in acting as a party on appeal from its own decision, arguing that the Board’s aggressive and adversarial defence of its decision was improper, and the Board attempted to use the appeal to bootstrap its original decision by making additional arguments on appeal. The Board argues that the structure of utilities regulation in Ontario makes it necessary and important for it to argue the merits of its decision on appeal. Held (Abella J. dissenting): The appeal should be allowed.

The decision of the Court of Appeal is set aside and the decision of the Board is reinstated. Per McLachlin C.J. and Rothstein, Cromwell, Moldaver, Karakatsanis and Gascon JJ.: The first issue is the appropriateness of the Board’s participation in the appeal. The concerns with regard to tribunal participation on appeal from the tribunal’s own decision should not be read to establish a categorical ban.

A discretionary approach provides the best means of ensuring that the principles of finality and impartiality are respected without sacrificing the ability of reviewing courts to hear useful and important information and analysis. Because of their expertise and familiarity with the relevant administrative scheme, tribunals may in many cases be well positioned to help the reviewing court reach a just outcome. Further, some cases may arise in which there is simply no other party to stand in opposition to the party challenging the tribunal decision.

In a situation where no other well-informed party stands opposed, the presence of a tribunal as an adversarial party may help the court ensure it has heard the best of both sides of a dispute. The following factors are relevant in informing the court’s exercise of its discretion: statutory provisions addressing the structure, processes and role of the particular tribunal and the mandate of the tribunal, that is, whether the function of the tribunal is to adjudicate individual conflicts between parties or whether it serves a policy-making, regulatory or investigative role, or acts on behalf of the public interest.

The importance of fairness, real and perceived, weighs more heavily against tribunal standing where the tribunal served an adjudicatory function in the proceeding. Tribunal standing is a matter to be determined by the court conducting the first-instance review in accordance with the principled exercise of that court’s discretion. In exercising its discretion, the court is required to balance the need for fully informed adjudication against the importance of maintaining tribunal impartiality.

Consideration of these factors in the context of this case leads to the conclusion that it was not improper for the Board to participate in arguing in favour of the reasonableness of its decision on appeal. The Board was the only respondent in the initial review of its decision. It had no alternative but to step in if the decision was to be defended on the merits. Also, the Board was exercising a regulatory role by setting just and reasonable payment amounts to a utility. In this case, the Board’s participation in the instant appeal

was not improper. The issue of tribunal “bootstrapping” is closely related to the question of when it is proper for a tribunal to act as a party on appeal or judicial review of its decision. The standing issue concerns the types of argument a tribunal may make, while the bootstrapping issue concerns the content of those arguments. A tribunal engages in bootstrapping where it seeks to supplement what would otherwise be a deficient decision with new arguments on appeal. A tribunal may not defend its decision on a ground that it did not rely on in the decision under review.

The principle of finality dictates that once a tribunal has decided the issues before it and provided reasons for its decision, absent a power to vary its decision or rehear the matter, it cannot use judicial review as a chance to amend, vary, qualify or supplement its reasons. While a permissive stance towards new arguments by tribunals on appeal serves the interests of justice insofar as it ensures that a reviewing court is presented with the strongest arguments in favour of both sides, to permit bootstrapping may undermine the importance of reasoned, well-written original decisions.

In this case, the Board did not impermissibly step beyond the bounds of its original decision in its arguments before the Court. The arguments raised by the Board on appeal do not amount to impermissible bootstrapping. The merits issue concerns whether the appropriate methodology was followed by the Board in its disallowance of $145 million in labour compensation costs sought by OPG.

The just-and-reasonable approach to recovery of the cost of services provided by a utility captures the essential balance at the heart of utilities regulation: to encourage investment in a robust utility infrastructure and to protect consumer interests, utilities must be allowed, over the long run, to earn their cost of capital, no more, no less.

In order to ensure the balance between utilities’ and consumers’ interests is struck, just and reasonable rates must be those that ensure consumers are paying what the Board expects it to cost to efficiently provide the services they receive, taking account of both operating and capital costs. In that way, consumers may be assured that, overall, they are paying no more than what is necessary for the service they receive, and utilities may be assured of an opportunity to earn a fair return for providing those services.

The Ontario Energy Board Act, 1998 does not prescribe the methodology the Board must use to weigh utility and consumer interests when deciding what constitutes just and reasonable payment amounts to the utility. However, the Ontario Energy Board Act, 1998 places the burden on the applicant utility to establish that payment amounts approved by the Board are just and reasonable. It would thus seem inconsistent with the statutory scheme to presume that utility decisions to incur costs were prudent.

The Board has broad discretion to determine the methods it may use to examine costs — but it cannot shift the burden of proof contrary to the statutory scheme. The issue is whether the Board was bound to use a no-hindsight, presumption of prudence test to determine whether labour compensation costs were just and reasonable. The prudent investment test, or prudence review, is a valid and widely accepted tool that regulators may use when assessing whether payments to a utility would be just and reasonable.

However, there is no support in the statutory scheme for the notion that the Board should be required as a matter of law, under the Ontario Energy Board Act, 1998 to apply the prudence test such that the mere decision not to apply it when considering committed costs would render its decision on payment amounts unreasonable. Where a statute requires only that the regulator set “just and reasonable” payments, as the Ontario Energy Board Act, 1998 does in Ontario, the regulator may make use of a variety of analytical tools in assessing the justness and reasonableness of a utility’s proposed payment amounts.

This is particularly so where, as here, the regulator has been given express discretion over the methodology to be used in setting payment amounts. Where the regulator has discretion over its methodological approach, understanding whether the costs at issue are “forecast” or “committed” may be helpful in reviewing the reasonableness of a regulator’s choice of methodology. Here, the labour compensation costs which led to the $145 million disallowance are best understood as partly committed costs and partly costs subject to management discretion.

They are partly committed because they resulted from collective agreements entered into between OPG and two of its unions, and partly subject to management discretion because OPG retained some flexibility to manage total staffing levels in light of, among other things, projected attrition of the workforce. It is not reasonable to treat these costs as entirely forecast. However, the Board was not bound to apply a particular prudence test in evaluating these costs.

It is not necessarily unreasonable, in light of the particular regulatory structure established by the Ontario Energy Board Act, 1998 , for the Board to evaluate committed costs using a method other than a no-hindsight prudence review. Applying a presumption of prudence would have conflicted with the burden of proof in the Ontario Energy Board Act, 1998 and would therefore not have been reasonable. The question of whether it was reasonable to assess a particular cost using hindsight should turn instead on the circumstances of that cost.

In this case, the nature of the disputed costs and the environment in which they arose provide a sufficient basis to find that the Board did not act unreasonably in not applying the prudent investment test in determining whether it would be just and reasonable to compensate OPG for these costs and disallowing them. Since the costs at issue are operating costs, there is little danger that a disallowance of these costs will have a chilling effect on OPG’s willingness to incur operating costs in the future, because costs of the type disallowed here are an inescapable element of operating a utility.

Further, the costs at issue arise in the context of an ongoing repeat-player relationship between OPG and its employees. Such a context supports the reasonableness of a regulator’s decision to weigh all evidence it finds relevant in striking a just and reasonable balance between the utility and consumers, rather than confining itself to a no-hindsight approach. There is no dispute that collective agreements are “immutable” between employees and the utility.

However, if the legislature had intended for costs under collective agreements to also be inevitably imposed on consumers, it would not have seen fit to grant the Board oversight of utility compensation costs. The Board’s decision in no way purports to force OPG to break its contractual commitments to unionized employees. It was not unreasonable for the Board to adopt a mixed approach that did not rely on quantifying the exact share of compensation costs that fell into the forecast and committed categories.

Such an approach represents an exercise of the Board’s methodological discretion in addressing a challenging issue where these costs did not fit easily into one category or the other. The Board’s disallowance may have adversely impacted OPG’s ability to earn its cost of capital in the short run. Nevertheless, the disallowance was intended to send a clear signal that OPG must take responsibility for improving its performance.

Such a signal may, in the short run, provide the necessary impetus for OPG to bring its compensation costs in line with what, in the Board’s opinion, consumers should justly expect to pay for an efficiently provided service. Sending such a signal is consistent with the Board’s market proxy role and its objectives under s. 1 of the Ontario Energy Board Act, 1998 . Per Abella J. (dissenting): The Board’s decision was unreasonable because the Board failed to apply the methodology set

out for itself for evaluating just and reasonable payment amounts. It both ignored the legally binding nature of the collective agreementsbetween Ontario Power Generation and the unions and failed to distinguish between committed compensation costs and those that werereducible. The Board stated in its reasons that it would use two kinds of review in order to determine just and reasonable paymentamounts.

As to “forecast costs”, that is, those over which a utility retains discretion and can still be reduced or avoided, the Boardexplained that it would review such costs using a wide range of evidence, and that the onus would be on the utility to demonstrate that itsforecast costs were reasonable. A different approach, however, would be applied to those costs the company could not “take action toreduce”. These costs, sometimes called “committed costs”, represent binding commitments that leave a utility with no discretion aboutwhether to make the payment.

The Board explained that it would evaluate these costs using a “prudence review”. The application of aprudence review does not shield these costs from scrutiny, but it does include a presumption that the costs were prudently incurred. Rather than apply the methodology it set out for itself, however, the Board assessed all compensation costs in OntarioPower Generation’s collective agreements as adjustable forecast costs, without determining whether any of them were costs for whichthere is no opportunity for the company to take action to reduce.

The Board’s failure to separately assess the compensation costscommitted as a result of the collective agreements from other compensation costs, ignored not only its own methodological template, butlabour law as well. The compensation costs for approximately 90 per cent of Ontario Power Generation’s regulated workforce were establishedthrough legally binding collective agreements which obligated the utility to pay fixed levels of compensation, regulated staffing levels,and provided unionized employees with employment security.

The obligations contained in these collective agreements were immutableand legally binding commitments. The agreements therefore did not just leave the utility with limited flexibility regarding overallcompensation or staffing levels, they made it illegal for the utility to alter the compensation and staffing levels of 90 per cent of itsregulated workforce in a manner that was inconsistent with its commitments under the agreements.

The Board, however, applying the methodology it said it would use for the utility’s forecast costs, put the onus on OntarioPower Generation to prove the reasonableness of all its compensation costs and concluded that it had failed to provide compellingevidence or documentation or analysis to justify compensation levels. Had the Board used the approach it said it would use for costs thecompany had no opportunity to reduce, it would have used an after-the-fact prudence review, with a rebuttable presumption that theutility’s expenditures were reasonable.

It may well be that Ontario Power Generation has the ability to manage some staffing levels through attrition or othermechanisms that did not breach the utility’s commitments under its collective agreements, and that these costs may therefore properly becharacterized as forecast costs. But no factual findings were made by the Board about the extent of any such flexibility. There is in factno evidence in the record, nor any evidence cited in the Board’s decision, setting out what proportion of Ontario Power Generation’scompensation costs were fixed and what proportion remained subject to the utility’s discretion.

Given that collective agreements arelegally binding, it was unreasonable for the Board to assume that Ontario Power Generation could reduce the costs fixed by thesecontracts in the absence of any evidence to that effect. Selecting a test which is more likely to confirm the Board’s assumption that collectively-bargained costs are excessive,misconceives the point of the exercise, namely, to determine whether those costs were in fact excessive.

Blaming collective bargainingfor what are assumed to be excessive costs, imposes the appearance of an ideologically-driven conclusion on what is intended to be aprincipled methodology based on a distinction between committed and forecast costs, not between costs which are collectively bargainedand those which are not. While the Board has wide discretion to fix payment amounts that are just and reasonable and, subject to certainlimitations, to establish the methodology used to determine such amounts, once the Board establishes a methodology, it is, at the veryleast, required to faithfully apply it.

Absent methodological clarity and predictability, Ontario Power Generation would be unable to know how to determinewhat expenditures and investments to make and how to present them to the Board for review. Wandering sporadically from approach toapproach, or failing to apply the methodology it declares itself to be following, creates uncertainty and leads, inevitably, to needlesslywasting public time and resources in constantly having to anticipate and respond to moving regulatory targets.

Whether or not one canfault the Board for failing to use a particular methodology, what the Board can unquestionably be analytically faulted for, is evaluatingall compensation costs fixed by collective agreements as being amenable to adjustment. Treating these compensation costs as reduciblewas unreasonable. The appeal should accordingly be dismissed, the Board’s decision set aside, and the matter remitted to the Board forreconsideration. Cases Cited By Rothstein J. Considered: Enbridge Gas Distribution Inc. v. Ontario Energy Board (2006), (ON CA), 210 O.A.C. 4;Northwestern Utilities Ltd. v.

City of Edmonton, (SCC), [1979] 1 S.C.R. 684; referred to: Toronto Hydro-ElectricSystem Ltd. v. Ontario (Energy Board), 2010 ONCA 284, 99 O.R. (3d) 481; Northwestern Utilities Ltd. v. City of Edmonton, (SCC), [1929] S.C.R. 186; TransCanada Pipelines Ltd. v. National Energy Board, 2004 FCA 149, 319 N.R. 171; OntarioPower Generation Inc. (Re), EB-2007-0905, November 3, 2008 (online: http://www.ontarioenergyboard.ca/); CAIMAW v. Paccar ofCanada Ltd., (SCC), [1989] 2 S.C.R. 983; B.C.G.E.U. v. Indust. Rel. Council (1988), (BC CA), 26B.C.L.R. (2d) 145; McLean v.

British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Ellis-Don Ltd. v. Ontario(Labour Relations Board), 2001 SCC 4, [2001] 1 S.C.R. 221; Tremblay v. Quebec (Commission des affaires sociales), (SCC), [1992] 1 S.C.R. 952; Ontario (Children’s Lawyer) v. Ontario (Information and Privacy Commissioner) (2005), (ON CA), 75 O.R. (3d) 309; Canada (Attorney General) v. Quadrini, 2010 FCA 246, [2012] 2 F.C.R. 3; Leon’s Furniture Ltd. v.Information and Privacy Commissioner (Alta.), 2011 ABCA 94, 502 A.R. 110; Henthorne v. British Columbia Ferry Services Inc., 2011

BCCA 476, 344 D.L.R. (4th) 292; United Brotherhood of Carpenters and Joiners of America, Local 1386 v. Bransen Construction Ltd.,2002 NBCA 27, 249 N.B.R. (2d) 93; Chandler v. Alberta Association of Architects, (SCC), [1989] 2 S.C.R. 848;Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3, [2015] 1 S.C.R.161; Bell Canada v.

Bell Aliant Regional Communications, 2009 SCC 40, [2009] 2 S.C.R. 764; Re General Increase in Freight Rates(1954), 76 C.R.T.C. 12; ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140; Stateof Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission of Missouri, 262 U.S. 276 (1923); Duquesne LightCo. v. Barasch, 488 U.S. 299 (1989); U.S. West Communications, Inc. v. Public Service Commission of Utah, 901 P.2d 270 (1995);British Columbia Electric Railway Co. v.

Public Utilities Commission of British Columbia, (SCC), [1960] S.C.R. 837;Nova Scotia Power Inc., Re, 2005 NSUARB 27; Nova Scotia Power Inc. (Re), 2012 NSUARB 227. By Abella J. (dissenting) Verizon Communications Inc. v. Federal Communications Commission, 535 U.S. 467 (2002); Northwestern Utilities Ltd. v.City of Edmonton, (SCC), [1929] S.C.R. 186; State of Missouri ex rel. Southwestern Bell Telephone Co. v.

PublicService Commission of Missouri, 262 U.S. 276 (1923); Enersource Hydro Mississauga Inc. (Re), 2012 LNONOEB 373 (QL); EnbridgeGas Distribution Inc. (Re), 2002 LNONOEB 4 (QL); Enbridge Gas Distribution Inc. v. Ontario Energy Board (2006), (ON CA), 210 O.A.C. 4; Ontario Power Generation v. Society of Energy Professionals, [2011] O.L.A.A. No. 117 (QL);TransCanada Pipelines Ltd. v. National Energy Board, 2004 FCA 149, 319 N.R. 171. Statutes and Regulations Cited Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, ss. 56, 69. Nuclear Safety and Control Act, S.C. 1997, c. 9.

Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B, ss. 1, 33(3), 78.1. Payments Under

Section 78.1 of the Act, O. Reg. 53/05, ss. 3, 6. Public Utilities Act, R.S.B.C. 1948, c. 277 [rep. 1973, c. 29, s. 187], s. 16(1)(b). Authors Cited Burns, Robert E., et al. The Prudent Investment Test in the 1980s, report NRRI-84-16. Columbus, Ohio: National Regulatory ResearchInstitute, April 1985. Chaykowski, Richard P. An Assessment of the Industrial Relations Context and Outcomes at OPG, file No. EB-2013-0321, exhibitF4-03-01, attachment 1, September 2013 (online: http://www.opg.com/about/regulatory-affairs/Documents/2014-2015/F4-03-01_Attachment%201.pdf). Clark, Ron W., Scott A. Stoll and Fred D. Cass.

Ontario Energy Law: Electricity. Markham, Ont.: LexisNexis, 2012. Falzon, Frank A. V. “Tribunal Standing on Judicial Review” (2008), 21 C.J.A.L.P. 21. Jacobs, Laverne A., and Thomas S. Kuttner. “Discovering What Tribunals Do: Tribunal Standing Before the Courts” (2002), 81 Can.Bar Rev. 616. Kahn, Jonathan. “Keep Hope Alive: Updating the Prudent Investment Standard for Allocating Nuclear Plant Cancellation Costs” (2010),22 Fordham Envtl. L. Rev. 43. Mullan, David. “Administrative Law and Energy Regulation”, in Gordon Kaiser and Bob Heggie, eds., Energy Law and Policy. Toronto:Carswell, 2011, 35. Ontario.

Office of the Auditor General of Ontario. 2011 Annual Report. Toronto: Queen’s Printer, 2011. Reid, Laurie, and John Todd. “New Developments in Rate Design for Electricity Distributors”, in Gordon Kaiser and Bob Heggie, eds.,Energy Law and Policy. Toronto: Carswell, 2011, 519. Semple, Noel. “The Case for Tribunal Standing in Canada” (2007), 20 C.J.A.L.P. 305. APPEAL from a judgment of the Ontario Court of Appeal (Rosenberg, Goudge and Blair JJ.A.), 2013 ONCA 359, 116 O.R.(3d) 793, 365 D.L.R. (4th) 247, 307 O.A.C. 109, [2013] O.J.

No. 3917 (QL), 2013 CarswellOnt 9792 (WL Can.), setting aside a decisionof the Divisional Court (Aitken, Swinton and Hoy JJ.), 2012 ONSC 729, 109 O.R. (3d) 576, 347 D.L.R. (4th) 355, [2012] O.J. No. 862(QL), 2012 CarswellOnt 2710 (WL Can.), and setting aside a decision of the Ontario Energy Board, EB-2010-0008, March 10, 2011(online: http://www.ontarioenergyboard.ca/), 2011 LNONOEB 57 (QL), 2011 CarswellOnt 3723 (WL Can.). Appeal allowed, Abella J.dissenting. Glenn Zacher, Patrick Duffy and James Wilson, for the appellant. John B.

Laskin, Crawford Smith, Myriam Seers and Carlton Mathias, for the respondent Ontario Power Generation Inc. Richard P. Stephenson and Emily Lawrence, for the respondent the Power Workers’ Union, Canadian Union of PublicEmployees, Local 1000.

Paul J. J. Cavalluzzo and Amanda Darrach , for the respondent the Society of Energy Professionals . Mark Rubenstein , for the intervener. The judgment of McLachlin C.J. and Rothstein, Cromwell, Moldaver, Karakatsanis and Gascon JJ. was delivered by [ 1 ] Rothstein J. — In Ontario, utility rates are regulated through a process by which a utility seeks approval from the Ontario Energy Board (“Board”) for costs the utility has incurred or expects to incur in a specified period of time.

Where the Board approves of costs, they are incorporated into utility rates such that the utility receives payment amounts to cover the approved expenditures. This case concerns the decision of the Board to disallow certain payment amounts applied for by Ontario Power Generation Inc. (“OPG”) as part of its rate application covering the 2011-2012 operating period.

Specifically, the Board disallowed $145 million in labour compensation costs related to OPG’s nuclear operations on the grounds that OPG’s labour costs were out of step with those of comparable entities in the regulated power generation industry. [ 2 ] OPG appealed the Board’s decision to the Ontario Divisional Court. A majority of the court dismissed the appeal and upheld the decision of the Board.

OPG then appealed that decision to the Ontario Court of Appeal, which set aside the decisions of the Divisional Court and the Board and remitted the matter to the Board for redetermination in accordance with its reasons. The Board now appeals to this Court. [ 3 ] OPG asserts that the Board’s decision to disallow these labour compensation costs was unreasonable. The crux of OPG’s argument is that the Board is legally required to compensate OPG for all of its prudently committed or incurred costs.

OPG asserts that prudence in this context has a particular methodological meaning that requires the Board to assess the reasonableness of OPG’s decisions to incur or commit to costs at the time the decisions to incur or commit to the costs were made and that OPG ought to benefit from a presumption of prudence.

Because the Board did not employ this prudence methodology, OPG argues that its decision was unreasonable. [ 4 ] The Board argues that a particular “prudence test” methodology is not compelled by law, and that in any case the costs disallowed here were not “committed” nuclear compensation costs, but are better characterized as forecast costs. [ 5 ] OPG also raises concerns regarding the Board’s role in acting as a party on appeal from its own decision.

OPG argues that in this case, the Board’s aggressive and adversarial defence of its original decision was improper, and that the Board attempted to use the appeal to “bootstrap” its original decision by making additional arguments on appeal. [ 6 ] The Board asserts that the scope of its authority to argue on appeal was settled when it was granted full party rights in connection with the granting of leave by this Court.

Alternatively, the Board argues that the structure of utilities regulation in Ontario makes it necessary and important for it to argue the merits of its decisions on appeal. [ 7 ] In my opinion, the labour compensation costs which led to the $145 million disallowance are best understood as partly committed costs and partly costs subject to management discretion.

They are partly committed because they resulted from collective agreements entered into between OPG and two of its unions, and partly subject to management discretion because OPG retained some flexibility to manage total staffing levels in light of, among other things, projected attrition of the workforce. It is not reasonable to treat these costs as entirely forecast. However, I do not agree with OPG that the Board was bound to apply a particular prudence test in evaluating these costs. The Ontario Energy Board Act, 1998 , S.O. 1998, c. 15, Sch.

B, and associated regulations give the Board broad latitude to determine the methodology it uses in assessing utility costs, subject to the Board’s ultimate duty to ensure that payment amounts it orders be just and reasonable to both the utility and consumers. [ 8 ] In this case, the nature of the disputed costs and the environment in which they arose provide a sufficient basis to find that the Board did not act unreasonably in disallowing the costs. [ 9 ] Regarding the Board’s role on appeal, I do not find that the Board acted improperly in arguing the merits of this case, nor do I find that the arguments raised on appeal amount to impermissible “bootstrapping”. [ 10 ] Accordingly, I would allow the appeal, set aside the decision of the Court of Appeal, and reinstate the decision of the Board.

I. Regulatory Framework [ 11 ] The Ontario Energy Board Act, 1998 establishes the Board as a regulatory body with authority to oversee, among other things, electricity generation in the province of Ontario.

Section 1 sets out the objectives of the Board in regulating electricity, which include: 1. (1) . . . 1. To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service. 2. To promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry.

Accordingly, the Board must ensure that it regulates with an eye to balancing both consumer interests and the efficiency and financial viability of the electricity industry. The Board’s role has also been described as that of a “market proxy”: 2012 ONSC 729 , 109 O.R. (3d)

576, at para. 54; 2013 ONCA 359, 116 O.R. (3d) 793, at para. 38. In this sense, the Board’s role is to emulate as best as possible theforces to which a utility would be subject in a competitive landscape: Toronto Hydro-Electric System Ltd. v. Ontario (Energy Board),2010 ONCA 284, 99 O.R. (3d) 481, at para. 48. [12] One of the Board’s most powerful tools to achieve its objectives is its authority to fix the amount of paymentsutilities receive in exchange for the provision of service.

Section 78.1(5) of the Ontario Energy Board Act, 1998 provides in relevant part:

(5) The Board may fix such other payment amounts as it finds to be just and reasonable, (

a) on an application for an order under this section, if the Board is not satisfied that the amount applied for is just and reasonable; . . . [13]

Section 78.1(6) provides: “. . . the burden of proof is on the applicant in an application made under this section”. [14] As I read these provisions, the utility applies for payment amounts for a future period (called the “test period”). TheBoard will accept the payment amounts applied for unless the Board is not satisfied that the amounts are just and reasonable. Where theBoard is not satisfied, s. 78.1(5) empowers it to fix other payment amounts which it finds to be just and reasonable. [15] This Court has had the occasion to consider the meaning of similar statutory language in Northwestern Utilities Ltd.v.

City of Edmonton, (SCC), [1929] S.C.R. 186. In that case, the Court held that “fair and reasonable” rates were those“which, under the circumstances, would be fair to the consumer on the one hand, and which, on the other hand, would secure to thecompany a fair return for the capital invested” (pp. 192-93). [16] This means that the utility must, over the long run, be given the opportunity to recover, through the rates it ispermitted to charge, its operating and capital costs (“capital costs” in this sense refers to all costs associated with the utility’s investedcapital).

This case is concerned primarily with operating costs. If recovery of operating costs is not permitted, the utility will not earn itscost of capital, which represents the amount investors require by way of a return on their investment in order to justify an investment inthe utility. The required return is one that is equivalent to what they could earn from an investment of comparable risk. Over the longrun, unless a regulated utility is allowed to earn its cost of capital, further investment will be discouraged and it will be unable to expandits operations or even maintain existing ones.

This will harm not only its shareholders, but also its customers: TransCanada PipelinesLtd. v. National Energy Board, 2004 FCA 149, 319 N.R. 171. [17] This of course does not mean that the Board must accept every cost that is submitted by the utility, nor does it meanthat the rate of return to equity investors is guaranteed. In the short run, return on equity may vary, for example if electricity consumptionby the utility’s customers is higher or lower than predicted. Similarly, a disallowance of any operating costs to which the utility hascommitted itself will negatively impact the return to equity investors.

I do not intend to enter into a detailed analysis of how the cost ofequity capital should be treated by utility regulators, but merely to observe that any disallowance of costs to which a utility has committeditself has an effect on equity investor returns.

This effect must be carefully considered in light of the long-run necessity that utilities beable to attract investors and retain earnings in order to survive and operate efficiently and effectively, in accordance with the statutoryobjectives of the Board in regulating electricity in Ontario. [18] As noted above, the burden is on the utility to satisfy the Board that the payment amounts it applies for are just andreasonable.

If it fails to do so, the Board may disallow the portion of the application that it finds is not for amounts that are just andreasonable. [19] Where applied-for operating costs are disallowed, the utility, if it is able to do so, may forego the expenditure ofsuch costs. Where the expenditure cannot be foregone, the shareholders of the utility will have to absorb the reduction in the form ofreceiving less than their anticipated rate of return on their investment, i.e. the utility’s cost of equity capital.

In such circumstances it willbe the management of the utility that will be responsible in the future for bringing its costs into line with what the Board considers justand reasonable. [20] In order to ensure that the balance between utilities’ and consumers’ interests is struck, just and reasonable ratesmust be those that ensure consumers are paying what the Board expects it to cost to efficiently provide the services they receive, takingaccount of both operating and capital costs.

In that way, consumers may be assured that, overall, they are paying no more than what isnecessary for the service they receive, and utilities may be assured of an opportunity to earn a fair return for providing those services. II. Facts [21] OPG is Ontario’s largest energy generator, and is subject to rate regulation by the Board. OPG came into being in1999 as one of the successor corporations to Ontario Hydro. It operates Board-regulated nuclear and hydroelectric facilities that generateapproximately half of Ontario’s electricity.

Its sole shareholder is the Province of Ontario. [22] It employs approximately 10,000 people in connection with its regulated facilities, 95 percent of whom work in itsnuclear business.

Approximately 90 percent of its employees in its regulated businesses are unionized, with approximately two thirds ofunionized employees represented by the Power Workers’ Union, Canadian Union of Public Employees, Local 1000 (“PWU”), and onethird represented by the Society of Energy Professionals (“Society”). [23] Since early in its existence as an independent utility, OPG has been aware of the importance of improving itscorporate performance. As part of a general effort to improve its business, OPG undertook efforts to benchmark its nuclear performanceagainst comparable power plants around the world.

In a memorandum of agreement (“MOA”) with the Province of Ontario dated August17, 2005, OPG committed to the following: OPG will seek continuous improvement in its nuclear generation business and internal services. OPG will benchmark its performance in

these areas against CANDU nuclear plants worldwide as well as against the top quartile of private and publicly-owned nuclear electricity generators in North America. OPG’s top operational priority will be to improve the operation of its existing nuclear fleet. (A.R., vol.

III, at p. 215) [ 24 ] As part of OPG’s first-ever rate application with the Board in 2007, for a test period covering the years 2008 and 2009, OPG sought approval for a $6.4 billion “revenue requirement”; this term refers to “the total revenue that is required by the company to pay all of its allowable expenses and also to recover all costs associated with its invested capital”: L. Reid and J. Todd, “New Developments in Rate Design for Electricity Distributors”, in G. Kaiser and B. Heggie, eds., Energy Law and Policy (2011), 519, at p. 521.

This constituted an increase of $1 billion over the revenue requirement that it had sought and was granted under the regulatory scheme in place prior to the Board’s assumption of regulatory authority over OPG: EB-2007-0905, Decision with Reasons, November 3, 2008 (“Board 2008-2009 Decision”) (online), at pp. 5-6. [ 25 ] The Board found that OPG was not meeting the nuclear performance expectations of its sole shareholder and that it had done little to conduct benchmarking of its performance against that of its peers, despite its commitment to do so dating back to 2005.

Indeed, the only evidence of benchmarking that OPG submitted as part of its rate application was a 2006 report from Navigant Consulting, Inc. (“Navigant Report”), which found that OPG was overstaffed by 12 percent in comparison to its peers. The Board found that OPG had not acted on the recommendations of the Navigant Report and had not commissioned subsequent benchmarking studies to assess its performance (Board 2008-2009 Decision, at pp. 27 and 30). The Board also found that operating costs at OPG’s Pickering nuclear facilities were “far above industry averages” (p. 29).

The Board thus disallowed $35 million of OPG’s proposed revenue requirement and directed OPG to prepare benchmarking studies for use in future applications (p. 31). [ 26 ] In explaining the importance of benchmarking, the Board stated: “The reason why the MOA emphasized benchmarking was because such studies can and do shine a light on inefficiencies and lack of productivity improvement” (Board 2008- 2009 Decision, at p. 30). [ 27 ] On May 5, 2010, shortly before OPG was set to file its second rate application, which is the subject of this appeal, the Ontario Minister of Energy and Infrastructure wrote to the President and CEO of OPG to ensure that OPG would demonstrate in its upcoming rate application “concerted efforts to identify cost saving opportunities and focus [its] forthcoming rate application on those items that are essential to the safe and reliable operation of [its] existing assets and projects already under development” ( A.R., vol.

IV, at p. 38 ). [ 28 ] On May 26, 2010, OPG filed its payment amounts application for the 2011-2012 test period. As part of its evidence before the Board, OPG submitted two reports by ScottMadden Inc., a general management consulting firm specializing in benchmarking and business planning for nuclear facilities. The Phase 1 report compared OPG’s nuclear operational and financial performance against that of external peers using industry performance metrics. The Phase 2 final report discussed performance improvement targets with the intent of improving OPG’s nuclear business.

OPG collaborated with ScottMadden on the Phase 1 and 2 reports, which were released on July 2, 2009 and September 11, 2009, respectively. [ 29 ] OPG’s rate application pertained to a test period beginning on January 1, 2011 and ending on December 31, 2012. OPG sought approval of a $6.9 billion revenue requirement, which represented an increase of 6.2 percent over OPG’s then-current revenue based on the preceding year’s approved utility rates.

Of the $6.9 billion revenue requirement sought by OPG, $2.8 billion pertained to compensation costs, of which approximately $2.4 billion concerned OPG’s nuclear business. [ 30 ] A substantial portion of OPG’s wage and compensation expenses was fixed by OPG’s collective agreements with the unions, PWU and the Society. At the time of its application, OPG was party to a collective agreement with PWU, effective from April 2009 through March 2012, while its collective agreement with the Society expired on December 31, 2010. These collective agreements provided annual wage increases between 2 percent and 3 percent.

OPG forecast an additional 1 percent increase for step progressions and promotions of unionized staff. Following the Board’s hearing in this case, an interest arbitrator ordered a new collective agreement between OPG and the Society, effective February 3, 2011. This collective agreement provided wage increases that varied between 1 percent and 3 percent. III. Judicial History A.

Ontario Energy Board: 2011 LNONOEB 57 (QL) (“Board Decision”) [ 31 ] In its decision concerning OPG’s rate application for the 2011-2012 test period, the Board stated that it enjoyed broad discretion pursuant to Ontario Regulation 53/05 ( Payments Under

Section 78.1 of the Act ) and s. 78.1 of the Ontario Energy Board Act, 1998 to “adopt the mechanisms it judges appropriate in setting just and reasonable rates” (para. 73). The Board recognized that different tests could apply depending on whether its analysis concerned the recovery of forecast costs or an after-the-fact review of costs already incurred.

In this rate application, it was appropriate to take into consideration all evidence that the Board deemed relevant to assess the reasonableness of OPG’s revenue requirement. [ 32 ] The Board rejected OPG’s proposed revenue requirement of $6.9 billion, reducing it by $145 million over the test period “to send a clear signal that OPG must take responsibility for improving its performance” (para. 350).

Key to its disallowance was the Board’s finding that OPG was overstaffed and that its compensation levels were excessive. [ 33 ] Regarding the number of staff, the Board pointed out that a benchmarking study commissioned by OPG itself, the ScottMadden Phase 2 final report, suggested that certain staff positions could be reduced or eliminated altogether.

The Board suggested that OPG could review its organizational structure and reassign or eliminate positions in the coming years, as 20 percent to 25 percent of its staff were set to retire between 2010 and 2014 and it was possible to make greater use of external contractors. Regarding compensation, the Board found that OPG had not submitted compelling evidence justifying the benchmarking of its salaries of non-

management employees to the 75th percentile of a survey of industry salaries conducted by Towers Perrin. Instead, the Board consideredthe proper benchmark to be the 50th percentile, the same percentile against which OPG benchmarks management compensation. Indetermining the appropriate disallowance, the Board acknowledged that OPG may not have been able to achieve the full $145 million insavings for the test period through the reduction of compensation levels alone because of its collective agreements with the unions. B.

Ontario Superior Court of Justice, Divisional Court: 2012 ONSC 729, 109 O.R. (3d) 576 [34] OPG appealed the Board Decision on the basis that it was unreasonable and that the reasons provided wereinadequate. OPG argued that the Board should have conducted a prudent investment test — that is, it should have restricted its review ofcompensation costs to a consideration of whether the collective agreements that prescribed the compensation costs were prudent at thetime they were entered into.

OPG also argued that the Board should have presumed that the costs were prudent. [35] The panel of three Divisional Court judges was split. Justice Hoy (as she then was), for the majority, found theBoard Decision reasonable because management had the ability to reduce total compensation costs in the future within the framework ofthe collective agreement. Applying a strict prudent investment test would not permit the Board to fulfill its statutory objective ofpromoting cost effectiveness in the generation of electricity.

It was particularly important for the Board to exercise its authority to set justand reasonable rates given the “double monopoly” dynamic at play: The collective agreements were concluded between a regulated monopoly, which passes costs on to consumers, not a competitiveenterprise, and two unions which account for approximately 90 per cent of the employees and amount to a near, second monopoly, basedon terms inherited from Ontario Hydro and in face of the reality that running a nuclear operation without the employees would beextremely difficult. [para. 54] [36] Justice Aitken dissented, finding that, to the extent that [nuclear compensation] costs were predetermined, in the sense that they were locked in as a result of collectiveagreements entered prior to the date of the application and the test period, OPG only had to prove their prudence or reasonableness basedon the circumstances that were known or that reasonably could have been anticipated at the time the decision to enter those collectiveagreements was made. [para. 83] She would have held that the Board’s failure to undertake a separate and explicit prudence review for the committed portion of nuclearcompensation costs, coupled with its consideration of hindsight factors in assessing the reasonableness of these costs, rendered the BoardDecision unreasonable.

C. Ontario Court of Appeal: 2013 ONCA 359, 116 O.R. (3d) 793 [37] The Ontario Court of Appeal reversed the Divisional Court’s decision and remitted the case to the Board. The courtdrew a distinction between forecast costs and committed costs, with committed costs being those that the utility “is committed to pay in[the test period]” and that “cannot be managed or reduced by the utility in that time frame, usually because of contractual obligations”(para. 29).

Although costs may not require actual payment until the future, as in this case, costs that have been “contractually incurred tobe paid over the time frame are nonetheless committed even though they have not yet been paid” (para. 29). When reviewing such costs,the court held that the Board must undertake a prudence review as described in Enbridge Gas Distribution Inc. v. Ontario Energy Board(2006), (ON CA), 210 O.A.C. 4 (paras. 15-16). By failing to follow this jurisprudence and by requiring that OPG“manage costs that, by law, it cannot manage”, the Board acted unreasonably (para. 37). IV.

Issues [38] The Board raises two issues on appeal: 1. What is the appropriate standard of review? 2. Was the Board’s decision to disallow $145 million of OPG’s revenue requirement reasonable? [39] Before this Court, OPG has argued that the Board stepped beyond the appropriate role of a tribunal in an appealfrom its own decision, which raises the following additional issue: 3. Did the Board act impermissibly in pursuing its appeal in this case? V. Analysis [40] It is logical to begin by considering the appropriateness of the Board’s participation in the appeal.

I will nextconsider the appropriate standard of review, and then the merits issue of whether the Board’s decision in this case was reasonable. A. The Appropriate Role of the Board in This Appeal

(1) Tribunal Standing [41] In Northwestern Utilities Ltd. v. City of Edmonton, (SCC), [1979] 1 S.C.R. 684 (“NorthwesternUtilities”), per Estey J., this Court first discussed how an administrative decision-maker’s participation in the appeal or review of its owndecisions may give rise to concerns over tribunal impartiality.

Estey J. noted that “active and even aggressive participation can have noother effect than to discredit the impartiality of an administrative tribunal either in the case where the matter is referred back to it, or infuture proceedings involving similar interests and issues or the same parties” (p. 709). He further observed that tribunals already receivean opportunity to make their views clear in their original decisions: “. . . it abuses one’s notion of propriety to countenance its

participation as a full-fledged litigant in this Court” (p. 709). [42] The Court in Northwestern Utilities ultimately held that the Alberta Public Utilities Board — which, like the OntarioEnergy Board, had a statutory right to be heard on judicial appeal (see Ontario Energy Board Act, 1998, s. 33(3)) — was limited in thescope of the submissions it could make.

Specifically, Estey J. observed that [i]t has been the policy in this Court to limit the role of an administrative tribunal whose decision is at issue before the Court, even wherethe right to appear is given by statute, to an explanatory role with reference to the record before the Board and to the making ofrepresentations relating to jurisdiction. [p. 709] [43] This Court further considered the issue of agency standing in CAIMAW v. Paccar of Canada Ltd., (SCC), [1989] 2 S.C.R. 983, which involved judicial review of a British Columbia Labour Relations Board decision.

Though a majorityof the judges hearing the case did not endorse a particular approach to the issue, La Forest J., Dickson C.J. concurring, accepted that atribunal had standing to explain the record and advance its view of the appropriate standard of review and, additionally, to argue that itsdecision was reasonable. [44] This finding was supported by the need to make sure the Court’s decision on review of the tribunal’s decision wasfully informed. La Forest J. cited B.C.G.E.U. v. Indust. Rel.

Council (1988), (BC CA), 26 B.C.L.R. (2d) 145 (C.A.),at p. 153, for the proposition that the tribunal is the party best equipped to draw the Court’s attention to those considerations, rooted in the specialized jurisdiction or expertise of the tribunal, which may render reasonable what wouldotherwise appear unreasonable to someone not versed in the intricacies of the specialized area. (Paccar, at p. 1016) La Forest J. found, however, that the tribunal could not go so far as to argue that its decision was correct (p. 1017).

Though La Forest J.did not command a majority, L’Heureux-Dubé J. also commented on tribunal standing in her dissent, and agreed with the substance of LaForest J.’s analysis (p. 1026). [45] Trial and appellate courts have struggled to reconcile this Court’s statements in Northwestern Utilities and Paccar.Indeed, while this Court has never expressly overturned Northwestern Utilities, on some occasions, it has permitted tribunals toparticipate as full parties without comment: see, e.g., McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3S.C.R. 895; Ellis-Don Ltd. v.

Ontario (Labour Relations Board), 2001 SCC 4, [2001] 1 S.C.R. 221; Tremblay v. Quebec (Commissiondes affaires sociales), (SCC), [1992] 1 S.C.R. 952; see also Ontario (Children’s Lawyer) v. Ontario (Information andPrivacy Commissioner) (2005), (ON CA), 75 O.R. (3d) 309 (C.A.) (“Goodis”), at para. 24. [46] A number of appellate decisions have grappled with this issue and “for the most part now display a more relaxedattitude in allowing tribunals to participate in judicial review proceedings or statutory appeals in which their decisions were subject toattack”: D.

Mullan, “Administrative Law and Energy Regulation”, in G. Kaiser and B. Heggie, 35, at p. 51. A review of three appellatedecisions suffices to establish the rationale behind this shift. [47] In Goodis, the Children’s Lawyer urged the court to refuse or limit the standing of the Information and PrivacyCommissioner, whose decision was under review. The Ontario Court of Appeal declined to apply any formal, fixed rule that would limitthe tribunal to certain categories of submissions and instead adopted a contextual, discretionary approach: Goodis, at paras. 32-34.

Thecourt found no principled basis for the categorical approach, and observed that such an approach may lead to undesirable consequences: For example, a categorical rule denying standing if the attack asserts a denial of natural justice could deprive the court of vitalsubmissions if the attack is based on alleged deficiencies in the structure or operation of the tribunal, since these are submissions that thetribunal is uniquely placed to make.

Similarly, a rule that would permit a tribunal standing to defend its decision against the standard ofreasonableness but not against one of correctness, would allow unnecessary and prevent useful argument. Because the best argument thata decision is reasonable may be that it is correct, a rule based on this distinction seems tenuously founded at best as Robertson J.A. saidin United Brotherhood of Carpenters and Joiners of America, Local 1386 v. Bransen Construction Ltd., 2002 NBCA 27 , [2002]N.B.J.

No. 114, 249 N.B.R. (2d) 93 (C.A.), at para. 32. (Goodis, at para. 34) [48] The court held that Northwestern Utilities and Paccar should be read as the source of “fundamental considerations”that should guide the court’s exercise of discretion in the context of the case: Goodis, at para. 35. The two most important considerations,drawn from those cases, were the “importance of having a fully informed adjudication of the issues before the court” (para. 37), and “theimportance of maintaining tribunal impartiality”: para. 38.

The court should limit tribunal participation if it will undermine futureconfidence in its objectivity. The court identified a list of factors, discussed further below, that may aid in determining whether and towhat extent the tribunal should be permitted to make submissions: paras. 36-38. [49] In Canada (Attorney General) v. Quadrini, 2010 FCA 246, [2012] 2 F.C.R. 3, Stratas J.A. identified two commonlaw restrictions that, in his view, restricted the scope of a tribunal’s participation on appeal from its own decision: finality andimpartiality.

Finality, the principle whereby a tribunal may not speak on a matter again once it has decided upon it and provided reasonsfor its decision, is discussed in greater detail below, as it is more directly related to concerns surrounding “bootstrapping” rather thanagency standing itself. [50] The principle of impartiality is implicated by tribunal argument on appeal, because decisions may in some cases be

remitted to the tribunal for further consideration. Stratas J.A. found that “[s]ubmissions by the tribunal in a judicial review proceeding that descend too far, too intensely, or too aggressively into the merits of the matter before the tribunal may disable the tribunal from conducting an impartial redetermination of the merits later”: Quadrini , at para. 16 .

However, he ultimately found that these principles did not mandate “hard and fast rules”, and endorsed the discretionary approach set out by the Ontario Court of Appeal in Goodis : Quadrini , at paras. 19-20 . [ 51 ] A third example of recent judicial consideration of this issue may be found in Leon’s Furniture Ltd. v. Information and Privacy Commissioner (Alta.) , 2011 ABCA 94 , 502 A.R. 110. In this case, Leon’s Furniture challenged the Commissioner’s standing to make submissions on the merits of the appeal (para. 16).

The Alberta Court of Appeal, too, adopted the position that the law should respond to the fundamental concerns raised in Northwestern Utilities but should nonetheless approach the question of tribunal standing with discretion, to be exercised in view of relevant contextual considerations: paras. 28-29. [ 52 ] The considerations set forth by this Court in Northwestern Utilities reflect fundamental concerns with regard to tribunal participation on appeal from the tribunal’s own decision. However, these concerns should not be read to establish a categorical ban on tribunal participation on appeal.

A discretionary approach, as discussed by the courts in Goodis , Leon’s Furniture , and Quadrini , provides the best means of ensuring that the principles of finality and impartiality are respected without sacrificing the ability of reviewing courts to hear useful and important information and analysis: see N. Semple, “The Case for Tribunal Standing in Canada” (2007), 20 C.J.A.L.P. 305; L. A. Jacobs and T. S. Kuttner, “Discovering What Tribunals Do: Tribunal Standing Before the Courts” (2002), 81 Can. Bar Rev. 616; F. A. V.

Falzon, “Tribunal Standing on Judicial Review” (2008), 21 C.J.A.L.P. 21. [ 53 ] Several considerations argue in favour of a discretionary approach. Notably, because of their expertise and familiarity with the relevant administrative scheme, tribunals may in many cases be well positioned to help the reviewing court reach a just outcome. For example, a tribunal may be able to explain how one

interpretation of a statutory provision might impact other provisions within the regulatory scheme, or the factual and legal realities of the specialized field in which they work. Submissions of this type may be harder for other parties to present. [ 54 ] Some cases may arise in which there is simply no other party to stand in opposition to the party challenging the tribunal decision. Our judicial review processes are designed to function best when both sides of a dispute are argued vigorously before the reviewing court.

In a situation where no other well-informed party stands opposed, the presence of a tribunal as an adversarial party may help the court ensure it has heard the best of both sides of a dispute. [ 55 ] Canadian tribunals occupy many different roles in the various contexts in which they operate. This variation means that concerns regarding tribunal partiality may be more or less salient depending on the case at issue and the tribunal’s structure and statutory mandate.

As such, statutory provisions addressing the structure, processes and role of the particular tribunal are key aspects of the analysis. [ 56 ] The mandate of the Board, and similarly situated regulatory tribunals, sets them apart from those tribunals whose function it is to adjudicate individual conflicts between two or more parties. For tribunals tasked with this latter responsibility, “the importance of fairness, real and perceived, weighs more heavily” against tribunal standing: Henthorne v.

British Columbia Ferry Services Inc. , 2011 BCCA 476 , 344 D.L.R. (4th) 292, at para. 42 . [ 57 ] I am thus of the opinion that tribunal standing is a matter to be determined by the court conducting the first-instance review in accordance with the principled exercise of that court’s discretion.

In exercising its discretion, the court is required to balance the need for fully informed adjudication against the importance of maintaining tribunal impartiality. [ 58 ] In this case, as an initial matter, the Ontario Energy Board Act, 1998 expressly provides that “[t]he Board is entitled to be heard by counsel upon the argument of an appeal” to the Divisional Court: s. 33(3) .

This provision neither expressly grants the Board standing to argue the merits of the decision on appeal, nor does it expressly limit the Board to jurisdictional or standard-of-review arguments as was the case for the relevant statutory provision in Quadrini : see para. 2 . [ 59 ] In accordance with the foregoing discussion of tribunal standing, where the statute does not clearly resolve the issue, the reviewing court must rely on its discretion to define the tribunal’s role on appeal.

While not exhaustive, I would find the following factors, identified by the courts and academic commentators cited above, are relevant in informing the court’s exercise of this discretion:

(1) If an appeal or review were to be otherwise unopposed, a reviewing court may benefit by exercising its discretion to grant tribunal standing.

(2) If there are other parties available to oppose an appeal or review, and those parties have the necessary knowledge and expertise to fully make and respond to arguments on appeal or review, tribunal standing may be less important in ensuring just outcomes.

(3) Whether the tribunal adjudicates individual conflicts between two adversarial parties, or whether it instead serves a policy- making, regulatory or investigative role, or acts on behalf of the public interest, bears on the degree to which impartiality concerns are raised.

Such concerns may weigh more heavily where the tribunal served an adjudicatory function in the proceeding that is the subject of the appeal, while a proceeding in which the tribunal adopts a more regulatory role may not raise such concerns. [ 60 ] Consideration of these factors in the context of this case leads me to conclude that it was not improper for the Board to participate in arguing in favour of the reasonableness of its decision on appeal. First, the Board was the only respondent in the initial review of its decision.

Thus, it had no alternative but to step in if the decision was to be defended on the merits. Unlike some other provinces, Ontario has no designated utility consumer advocate, which left the Board — tasked by statute with acting to safeguard the public interest — with few alternatives but to participate as a party. [ 61 ] Second, the Board is tasked with regulating the activities of utilities, including those in the electricity market. Its regulatory mandate is broad.

Among its many roles: it licenses market participants, approves the development of new transmission and distribution facilities, and authorizes rates to be charged to consumers. In this case, the Board was exercising a regulatory role by setting

just and reasonable payment amounts to a utility. This is unlike situations in which a tribunal may adjudicate disputes between twoparties, in which case the interests of impartiality may weigh more heavily against full party standing. [62] The nature of utilities regulation further argues in favour of full party status for the Board here, as concerns aboutthe appearance of partiality are muted in this context. As noted by Doherty J.A., “[l]ike all regulated bodies, I am sure Enbridge winssome and loses some before the [Board].

I am confident that Enbridge fully understands the role of the regulator and appreciates thateach application is decided on its own merits by the [Board]”: Enbridge, at para. 28. Accordingly, I do not find that the Board’sparticipation in the instant appeal was improper. It remains to consider whether the content of the Board’s arguments was appropriate.

(2) Bootstrapping [63] The issue of tribunal “bootstrapping” is closely related to the question of when it is proper for a tribunal to act as aparty on appeal or judicial review of its decision.

The standing issue concerns what types of argument a tribunal may make, i.e.jurisdictional or merits arguments, while the bootstrapping issue concerns the content of those arguments. [64] As the term has been understood by the courts who have considered it in the context of tribunal standing, a tribunalengages in bootstrapping where it seeks to supplement what would otherwise be a deficient decision with new arguments on appeal: see,e.g., United Brotherhood of Carpenters and Joiners of America, Local 1386 v. Bransen Construction Ltd., 2002 NBCA 27, 249 N.B.R.(2d) 93.

Put differently, it has been stated that a tribunal may not “defen[d] its decision on a ground that it did not rely on in the decisionunder review”: Goodis, at para. 42. [65] The principle of finality dictates that once a tribunal has decided the issues before it and provided reasons for itsdecision, “absent a power to vary its decision or rehear the matter, it has spoken finally on the matter and its job is done”: Quadrini, atpara. 16, citing Chandler v. Alberta Association of Architects, (SCC), [1989] 2 S.C.R. 848.

Under this principle, thecourt found that tribunals could not use judicial review as a chance to “amend, vary, qualify or supplement its reasons”: Quadrini, atpara. 16. In Leon’s Furniture, Slatter J.A. reasoned that a tribunal could “offer

interpretations of its reasons or conclusion, [but] cannotattempt to reconfigure those reasons, add arguments not previously given, or make submissions about matters of fact not already engagedby the record”: para. 29. [66] By contrast, in Goodis, Goudge J.A. found on behalf of a unanimous court that while the Commissioner had reliedon an argument not expressly set out in her original decision, this argument was available for the Commissioner to make on appeal.

Though he recognized that “[t]he importance of reasoned decision making may be undermined if, when attacked in court, a tribunal cansimply offer different, better, or even contrary reasons to support its decision” (para. 42), Goudge J.A. ultimately found that theCommissioner was permitted to raise a new argument on judicial review. The new argument presented was “not inconsistent with thereason offered in the decision.

Indeed it could be said to be implicit in it”: para. 55. “It was therefore proper for the Commissioner to bepermitted to raise this argument before the Divisional Court and equally proper for the court to decide on that basis”: para. 58. [67] There is merit in both positions on the issue of bootstrapping. On the one hand, a permissive stance toward newarguments by tribunals on appeal serves the interests of justice insofar as it ensures that a reviewing court is presented with the strongestarguments in favour of both sides: Semple, at p. 315.

This remains true even if those arguments were not included in the tribunal’soriginal reasons. On the other hand, to permit bootstrapping may undermine the importance of reasoned, well-written original decisions.There is also the possibility that a tribunal, surprising the parties with new arguments in an appeal or judicial review after its initialdecision, may lead the parties to see the process as unfair.

This may be particularly true where a tribunal is tasked with adjudicatingmatters between two private litigants, as the introduction of new arguments by the tribunal on appeal may give the appearance that it is“ganging up” on one party. As discussed, however, it may be less appropriate in general for a tribunal sitting in this type of role toparticipate as a party on appeal. [68] I am not persuaded that the introduction of arguments by a tribunal on appeal that interpret or were implicit but notexpressly articulated in its original decision offends the principle of finality.

Similarly, it does not offend finality to permit a tribunal toexplain its established policies and practices to the reviewing court, even if those were not described in the reasons under review.Tribunals need not repeat explanations of such practices in every decision merely to guard against charges of bootstrapping should theybe called upon to explain them on appeal or review. A tribunal may also respond to arguments raised by a counterparty.

A tribunalraising arguments of these types on review of its decision does so in order to uphold the initial decision; it is not reopening the case andissuing a new or modified decision. The result of the original decision remains the same even if a tribunal seeks to uphold that effect byproviding an

interpretation of it or on grounds implicit in the original decision. [69] I am not, however, of the opinion that tribunals should have the unfettered ability to raise entirely new arguments onjudicial review. To do so may raise concerns about the appearance of unfairness and the need for tribunal decisions to be well reasonedin the first instance. I would find that the proper balancing of these interests against the reviewing courts’ interests in hearing thestrongest possible arguments in favour of each side of a dispute is struck when tribunals do retain the ability to offer

interpretations oftheir reasons or conclusions and to make arguments implicit within their original reasons: see Leon’s Furniture, at para. 29; Goodis, atpara. 55. [70] In this case, I do not find that the Board impermissibly stepped beyond the bounds of its original decision in itsarguments before this Court.

In its reply factum, the Board pointed out — correctly, in my view — that its submissions before this Courtsimply highlight what is apparent on the face of the record, or respond to arguments raised by the respondents. [71] I would, however, urge the Board, and tribunal parties in general, to be cognizant of the tone they adopt on review oftheir decisions. As Goudge J.A. noted in Goodis: . . . if an administrative tribunal seeks to make submissions on a judicial review of its decision, it [should] pay careful attention to thetone with which it does so.

Although this is not a discrete basis upon which its standing might be limited, there is no doubt that the toneof the proposed submissions provides the background for the determination of that issue. A tribunal that seeks to resist a judicial reviewapplication will be of assistance to the court to the degree its submissions are characterized by the helpful elucidation of the issues,

informed by its specialized position, rather than by the aggressive partisanship of an adversary. [para. 61] [ 72 ] In this case, the Board generally acted in such a way as to present helpful argument in an adversarial but respectful manner. However, I would sound a note of caution about the Board’s assertion that the imposition of the prudent investment test “would in all likelihood not change the result” if the decision were remitted for reconsideration (A.F., at para. 99).

This type of statement may, if carried too far, raise concerns about the principle of impartiality such that a court would be justified in exercising its discretion to limit tribunal standing so as to safeguard this principle. B. Standard of Review [ 73 ] The parties do not dispute that reasonableness is the appropriate standard of review for the Board’s actions in applying its expertise to set rates and approve payment amounts under the Ontario Energy Board Act, 1998 . I agree. In addition, to the extent that the resolution of this appeal turns on the

interpretation of the Ontario Energy Board Act, 1998 , the Board’s home statute, a standard of reasonableness presumptively applies: Dunsmuir v. New Brunswick , 2008 SCC 9 , [2008] 1 S.C.R. 190, at para. 54 ; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association , 2011 SCC 61 , [2011] 3 S.C.R. 654, at para. 30 ; Tervita Corp. v. Canada (Commissioner of Competition) , 2015 SCC 3 , [2015] 1 S.C.R. 161, at para. 35 . Nothing in this case suggests the presumption should be rebutted. [ 74 ] This appeal involves two distinct uses of the term “reasonable”.

One concerns the standard of review: on appeal, this Court is charged with evaluating the “justification, transparency and intelligibility” of the Board’s reasoning, and “whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law” ( Dunsmuir , at para. 47 ). The other is statutory: the Board’s rate-setting powers are to be used to ensure that, in its view, a just and reasonable balance is struck between utility and consumer interests. These reasons will attempt to keep the two uses of the term distinct. C.

Choice of Methodology Under the Ontario Energy Board Act, 1998 [ 75 ] The question of whether the Board’s decision to disallow recovery of certain costs was reasonable turns on how that decision relates to the Board’s statutory and regulatory powers to approve payments to utilities and to have these payments reflected in the rates paid by consumers.

The Board’s general rate- and payment-setting powers are described above under the “Regulatory Framework” heading. [ 76 ] The just-and-reasonable approach to recovery of the cost of services provided by a utility captures the essential balance at the heart of utilities regulation: to encourage investment in a robust utility infrastructure and to protect consumer interests, utilities must be allowed, over the long run, to earn their cost of capital, no more, no less. [ 77 ] The Ontario Energy Board Act, 1998 does not, however, either in s. 78.1 or elsewhere, prescribe the methodology the Board must use to weigh utility and consumer interests when deciding what constitutes just and reasonable payment amounts to the utility.

Indeed, s. 6(1) of O. Reg. 53/05 expressly permits the Board, subject to certain exceptions set out in s. 6(2), to “establish the form, methodology , assumptions and calculations used in making an order that determines payment amounts for the purpose of

section 78.1 of the Act”. [ 78 ] As a contrasting example, para. 4.1 of s. 6(2) of O. Reg. 53/05 establishes a specific methodology for use when the Board reviews “costs incurred and firm financial commitments made in the course of planning and preparation for the development of proposed new nuclear generation facilities”. When reviewing such costs, the Board must be satisfied that “the costs were prudently incurred ” and that “the financial commitments were prudently made ”: para. 4.1 of 6(2).

The provision thus establishes a specific context in which the Board’s analysis is focused on the prudence of the decision to incur or commit to certain costs. The absence of such language in the more general s. 6(1) provides further reason to read the regulation as providing broad methodological discretion to the Board in making orders for payment amounts where the specific provisions of s. 6(2) do not apply. [ 79 ] Regarding whether a presumption of prudence must be applied to OPG’s decisions to incur costs, neither the Ontario Energy Board Act, 1998 nor O. Reg. 53/05 expressly establishes such a presumption.

Indeed, the Ontario Energy Board Act, 1998 places the burden on the applicant utility to establish that payment amounts approved by the Board are just and reasonable: s. 78.1(6) and (7). It would thus seem inconsistent with the statutory scheme to presume that utility decisions to incur costs were prudent. [ 80 ] Justice Abella concludes that the Board’s review of OPG’s costs should have consisted of “an after-the-fact prudence review, with a rebuttable presumption that the utility’s expenditures were reasonable”: para. 150. Such an approach is contrary to the statutory scheme.

While the Board has considerable methodological discretion, it does not have the freedom to displace the burden of proof established by s. 78.1(6) of the Ontario Energy Board Act, 1998 : “. . . the burden of proof is on the applicant in an application made under this section”. Of course, this does not imply that the applicant must systematically prove that every single cost is just and reasonable.

The Board has broad discretion to determine the methods it may use to examine costs — it just cannot shift the burden of proof contrary to the statutory scheme. [ 81 ] In judicially reviewing a decision of the Board to allow or disallow payments to a utility, the court’s role is to assess whether the Board reasonably determined that a certain payment amount was “just and reasonable” for both the utility and the consumers.

Such an approach is consistent with this Court’s rate-setting jurisprudence in other regulatory domains in which the regulator is given methodological discretion, where it has been observed that “[t]he obligation to act is a question of law, but the choice of the method to be adopted is a question of discretion with which, under the statute, no Court of law may interfere”: Bell Canada v.

Bell Aliant Regional Communications , 2009 SCC 40 , [2009] 2 S.C.R. 764, at para. 40 (concerning telecommunication rate-setting), quoting Re General Increase in Freight Rates (1954), 76 C.R.T.C. 12 (S.C.C.), at p. 13 (concerning railway freight rates) . Of course, today this statement must be understood to permit intervention by a court where the exercise of discretion rendered a decision unreasonable. Accordingly, it remains to determine whether the Board’s analytical approach to disallowing the costs at issue in this case rendered the Board’s decision unreasonable under the “just and reasonable” standard. D.

Characterization of Costs at Issue

[ 82 ] Forecast costs are costs which the utility has not yet paid, and over which the utility still retains discretion as to whether the disbursement will be made. A disallowance of such costs presents a utility with a choice: it may change its plans and avoid the disallowed costs, or it may incur the costs regardless of the disallowance with the knowledge that the costs will ultimately be borne by the utility’s shareholders rather than its ratepayers. By contrast, committed costs are those for which, if a regulatory board disallows recovery of the costs in approved payments, the utility and its shareholde

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