Sumas Energy 2 Inc. v. Canada (National Energy Board), 2005 FCA 377

Date: 20051109

Docket: A-462-04

Citation: 2005 FCA 377

CORAM:        LÉTOURNEAU J.A.

NOËL J.A.

SHARLOW J.A.

BETWEEN:

                                                        SUMAS ENERGY 2, INC.

                                                                                                                                            Appellant

                                                                           and

                                          NATIONAL ENERGY BOARD and others

                                                                                                                                      Respondents

                         Heard at Vancouver, British Columbia on November 7, 8 and 9, 2005.

          Judgment delivered from the Bench at Vancouver, British Columbia on November 9, 2005.

REASONS FOR JUDGMENT BY THE COURT BY:                                        LÉTOURNEAU J.A.

                                                                                                                                          NOËL J.A.

                                                                                                                                  SHARLOW J.A.

Date: 20051109

Docket: A-462-04

Citation: 2005 FCA 377

CORAM:        LÉTOURNEAU J.A.

NOËL J.A.

SHARLOW J.A.

BETWEEN:

                                                        SUMAS ENERGY 2, INC.

                                                                                                                                            Appellant

                                                                           and

                                          NATIONAL ENERGY BOARD and others

                                                                                                                                      Respondents

                                     REASONS FOR JUDGMENT BY THE COURT

          (Delivered from the Bench at Vancouver, British Columbia, on November 9, 2005)

THE COURT

[1]                Sumas Energy 2, Inc. ("SE2") applied under sections 58.16 and 58.23 of the National Energy Board Act, R.S.C. 1985, c.N-7 (the "NEB Act"), for a "Certificate of Public Convenience and Necessity" ("Certificate") to construct an international power line ("IPL") connecting its proposed power plant in Sumas, Washington, to B.C. Hydro and Power Authority's Clayburn substation just north of the international border. Those provisions read as follows:

[2]                SE2 intends to locate its power plant one kilometre south of the international border in Sumas, Washington. It is proposed that the power plant will burn Canadian natural gas and transmit electricity via the proposed IPL through the Clayburn substation to the main electrical grid which services British Columbia, Alberta and eleven western states in the United States.

[3]                The construction and operation of the power plant have been approved by the Governor of the State of Washington, in accordance with the recommendation of the Washington State Energy Facility Site Evaluation Council ("EFSEC"). The EFSEC evaluation included an environmental review that dealt with substantially the same evidence as that before the National Energy Board ("NEB"). On the factual questions relating to the environmental issues, the EFSEC reached substantially the same conclusions. The power plant is expected to emit over 800 tons of pollutants annually into the Fraser Valley airshed.

[4]                On March 4, 2004, the Board dismissed SE2's application (EH-1-2000). SE2 then applied under subsection 22(1) of the NEB Act for leave to appeal the Board's decision. That provision reads as follows:

[5]                Leave to appeal was granted on July 26, 2004. SE2 seeks an order setting aside the decision of the Board and referring the matter back to the Board with a direction that the Certificate be issued or that the matter be redetermined by a different panel in a manner consistent with the reasons of this Court.

[6]                The main hearing lasted 30 days (between May and September 2003). SE2 called numerous witnesses. Provincial and municipal governments contested SE2's case through their own expert witnesses. A large number of other intervenors, including the respondents Society Promoting Environmental Conservation, David Suzuki Foundation, Province of British Columbia, City of Abbotsford, Fraser Valley District, and Abbotsford Downtown Business Association, also opposed the application.

Alleged errors

[7]                In support of its appeal, SE2 claims that the Board (1) exceeded its jurisdiction by considering the potential environmental effects in Canada of the power plant, (2) did not apply proper tests, (3) acted in an arbitrary and discriminatory manner, and (4) failed to give effect to the North American Free Trade Agreement, [1994] Can. T.S. No.2 ("NAFTA ").

Standard of review

[8]                The interpretation of section 58.16 of the NEB Act, and in particular the interpretation of the phrase "public convenience and necessity" as it appears in section 58.16, is a question of law. Whether the Board has the jurisdiction to consider the environmental effects in Canada of the power plant is also a question of law. Counsel for SE2 submits that the Board's determination of those two issues should be reviewed on the standard of correctness. We agree.

[9]                As to the standard of review applicable to the Board's decision on the question of "public convenience and necessity", we note that Parliament has required the Board to determine for itself what factors it will take into account in determining whether an IPL "is and will be required by the present and future public convenience and necessity". Section 58.16 provides that the Board must "have regard to all the factors it considers relevant". Given the broad and permissive language of section 58.16, the nature of the Board as a specialized tribunal, and the intensely factual nature of the Board's inquiry into matters covered by section 58.16, which lie at the heart of the Board's expertise, Parliament could not have intended the Court to intervene lightly with the Board's determination as to what it considers relevant. In our view, the standard of review on that point is more deferential than correctness. As will be seen, we need not decide for the purposes of this appeal whether the standard is reasonableness or whether the Board is entitled to the broader degree of deference for which the patently unreasonableness standard calls.

1^st Issue - Jurisdiction

[10]            According to SE2, the Board did not have the jurisdiction under the NEB Act to consider the potential environmental effects in Canada of the U.S. power plant. It refers in this respect to the Canadian Environmental Assessment Act, S.C. 1999, c. 37 ("CEAA"), a statute which is in pari materia with the NEB Act, and submits that the NEB Act should be construed the same way.

[11]            In particular, SE2 argues that the Board having found that, under the CEAA, it did not have the jurisdiction to consider environmental effects whose source is outside Canada, it was bound to hold that its jurisdiction was limited in the same manner under the NEB Act.

[12]            We respectfully disagree. As the Board explained in its reasons, its ability to enforce its orders can serve to delineate the extent of the jurisdiction granted to it by Parliament. Under the CEAA, the Board would be unable to enforce any mitigation measure within the U.S. as its decision would have no binding effect outside Canada. It is unlikely that Parliament intended the Board to have jurisdiction to make orders which it cannot enforce.

[13]            In contrast, the decision in issue shows that in disposing of SE2's application under the NEB Act, the Board did have the ability to mitigate or negate the negative environmental impact in Canada resulting from the power plant in the U.S., if it was of the view that this consideration tilted the scales against the issuance of the Certificate. Under subsections 58.16(1) and (2) of the NEB Act, the Board had to be satisfied that the IPL "is and will be required by the present and future public convenience and necessity" and, in doing so, was to have regard "to all considerations that appear to it to be relevant". The Board identified the negative environmental impact in Canada stemming from the plant in the U.S. as a relevant consideration. After weighing the benefits and adverse effects, the Board decided that the IPL did not meet the test of "public convenience and necessity", and proceeded to deny the Certificate.

[14]            That is the context in which the Board held that it had the jurisdiction to consider the environmental impact in Canada of the power plant in the U.S. under the NEB Act, but not under the CEAA. In our view, no error can be attributed to the Board in this regard.

[15]            SE2 further submits that, in finding that it had the requisite jurisdiction, the Board departed from its earlier decision in CanStates Marketing, (November 1994), GH-3-94 (NEB) ("CanStates"), where the Board held that it had no jurisdiction under the NEB Act to consider the environmental effects in Canada stemming from facilities in the U.S.

[16]            The Board distinguished CanStates. It first noted that:

At issue were the greenhouse gas emissions that would result from the combustion of the gas by the power plant and the impact of those emissions on the global commons. The Board considered the narrower issue of whether it had jurisdiction to consider the environmental effects on federal areas of jurisdiction of the end use of the gas in the U.S.

The Board first examined its jurisdiction under the EARPGO, which has now been replaced by the CEA Act. It found that the only reference to matters outside of Canada in the EARPGO was a provision allowing the review of the environmental effects that moved from Canada to another nation. There was no explicit direction to consider effects that migrated into Canada. The Board stated that, if Parliament had intended the Board to consider environmental effects migrating into Canada, it would have done so explicitly. It therefore concluded that there was neither explicit nor implicit authority under the EARPGO to consider these effects.

The Board went on to note that the NEB Act did not establish any explicit jurisdiction to look at environmental effects from outside Canada. The Board stated therefore that it reached the same conclusion on the NEB Act as it reached on the EARPGO.

                                                                                                                    (Reasons, p. 137)

[17]            The Board then explained that in CanStates, it was dealing with a different factual situation:

In CanStates the Board did not examine the connection that existed between the gas export licence and the environmental effects migrating into Canada and did not examine whether a direct connection would render those effects relevant to its considerations. Although the Board, for the purpose of its analysis in that case, considered the effects on areas of federal jurisdiction, the real issue was greenhouse emissions that have world-wide rather than local effects.

In this case, the close connection between the Power Plant and the IPL is recognized by the Board. In addition, the concerns raised by intervenors are specific to environmental effects such as those that may affect air quality within their local communities rather than effects on the more amorphous global commons.

                                                                                                                    (Reasons, p. 138)

[18]            The Board went on to explain its identification of the close connection and why it had, as a result of that connection, the jurisdiction to consider the environmental impact in this case:

The Board considers that the Power Plant and the IPL are interlinked. Without the Power Plant there would be no need for the IPL. If the IPL were not built, the Power Plant might not proceed. The IPL would have no other function than to transmit all of the electrical output of the Power Plant. The two undertakings would in fact be components of a single enterprise. Any benefits or burdens that would arise from the IPL itself are clearly relevant considerations in determining the Canadian public interest. In the Board's view, any burdens (as well as benefits) that might be felt in Canada from the Power Plant are directly linked to the IPL and are, therefore, similarly relevant. Accordingly, the Board has concluded that it has the authority under the NEB Act to consider the environmental effects in Canada from the Power Plant in Washington, as a matter relevant to its determination of whether the proposed IPL is in the Canadian public interest.

                                                                                                                    (Reasons, p. 140)

[19]            In our view, the Board properly held that the close connection between the power plant and the IPL, coupled with the environmentally sensitive and localized area in Canada which would be impacted by the project, gave rise to a situation with which it had not been confronted in CanStates.

[20]            SE2 argues that it was not open to the Board to consider the potential effects in Canada of the power plant on the basis that it was "connected" to the power line. According to SE2, this "connectedness test" appears nowhere in the NEB Act, and is a novel "self created test" (SE2's written notes, paragraph 121).

[21]            With respect, in emphasizing this connection, the Board was not purporting to set out a legal test. Rather, it was showing that any burden (as well as benefit) that might be felt in Canada from the power plant was directly linked to the IPL and was, therefore, relevant to the exercise of the Board's discretion in deciding whether to issue the Certificate. In doing so, the Board was merely exercising its authority pursuant to subsection 58.16(2) of the NEB Act "to have regard to all considerations that appear to it to be relevant".

[22]            The Board went on to deal with the argument that express language would be required to give it jurisdiction to consider the effects in Canada of the power plant in the U.S. The Board referred to Quebec (Attorney General) v. Canada (National Energy Board), [1994] 1 S.C.R. 159, in which it had taken into consideration matters that previously had been specifically included in the NEB Act, but which had been removed by Parliament. The Supreme Court confirmed that the Board's authority to consider matters that were relevant gave it the power to consider matters that were not specifically set out in the NEB Act.

[23]            More on point is the decision of this Court in Nakina (Township) v. Canadian National Railway Co. [1986] F.C.J. No. 426 (F.C.A.). In that case, the Canadian Transport Commission, through a Committee, held hearings regarding the closing of a railway station in Nakina Township. Nakina presented evidence of the negative effects of the closure on the economy of the region. The Committee decided that it was not entitled to consider these effects since the legislation under which it operated only mentioned technical operation, safety and service. The Court noted that the Committee acknowledged that it was required to have regard for the public interest and stated (page 2):

I find this conclusion startling. The Committee concedes that it must have regard to the public interest. I would have thought that, by definition, the term "public interest" includes the interests of all the affected members of the public. The determination of what is in the public interest involves the weighing and balancing of competing considerations. Some may be given little or no weight; others much. But surely a body charged with deciding in the public interest is "entitled" to consider the effects of what is proposed on all members of the public. To exclude from consideration any class or category of interests which form part of the totality of the general public interest is accordingly, in my view, an error of law justifying the intervention of this Court.

[24]            The Court later explained (page 3):

While it is true, of course, that the Railway Act gives the Commission special responsibilities in the three areas identified by the Committee, namely, technical operation, safety and service, its power of decision making is by no means limited to a narrow consideration of those matters only. Indeed in some cases the Commission is directed to decide in only the most general terms such as in accordance with the public convenience and necessity. To put the matter another way, while the Commission may have the jurisdiction, in the public interest, to regulate questions of technical operation, safety and service, those fields of jurisdiction do not themselves constitute either a limitation or a definition of what the public interest is, either generally or with regard to any particular case.

[25]            The statutory standard referred to in these cases was sufficiently similar to the standard reflected in subsection 58.16(1) to make these comments apposite. In our view, the Board was on solid ground when it concluded that the absence of any specific reference in the NEB Act, or its regulations, to a matter that the Board otherwise considers relevant does not in any way restrict the Board from considering that matter.

[26]            Lastly, SE2 argues that in assessing whether it had jurisdiction to consider the effects in Canada of the power plant, the Board should have been mindful of the decision of the EFSEC and the role played by the principles of "international comity". The suggestion is that this might have led the Board to a different conclusion.

[27]            It is not necessary to explore in depth the principles of "international comity" to address this argument (see Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 at 1095-1096). Suffice it to say that the EFSEC was concerned with the impact of the project from a U.S. perspective, while the Board had to consider the Canadian perspective. Both were seeking to advance their respective public interests, which in this case did not coincide. In that context, the Board was not obliged to defer to the EFSEC or to alter in any way its assessment of the factors which it considered relevant.

[28]            We, therefore, conclude that the Board committed no error when it held that it had jurisdiction to consider the environmental effects in Canada of the power plant in its assessment of the public convenience and necessity.

2^nd Issue - Whether the Board applied the wrong test to the determination of the issue of public convenience and necessity

[29]            Essentially SE2 submits that the Board applied a test of indispensable necessity to the determination of the question of whether the IPL "is and will be required by the present and future public convenience and necessity". In other words, it is alleged that the Board applied to SE2's application for a certificate a more stringent test than the one warranted at law.

[30]            In support of its contention, SE2 refers us to the following three very short excerpts of views expressed by the Board, excerpts that it should be pointed out, must be understood in their context:

a)             Nonetheless, on the evidence provided, the Board is of the view that while these benefits could exist, there are no existing significant reliability or market issues in the SE2 market region to make the capture of these potential benefits imperative; (Reasons, page 42)

b)             In the Board's view, the Power Plant is one of many smaller independent power producers vying to enter the market and that the Power Plant would not have an appreciable effect on whether demand is met; (Reasons, page 41)

c)             The Board is of the view that the benefits of the IPL and Power Plant, even if they were all realized, would not be substantial benefits to Canadians. (Reasons, page 96)

                                                                                                                  (Emphasis added.)

[31]            It is in the underlined words that SE2 sees the creation by the Board of a new necessity test, one that is overly stringent and that, in SE2's submission, will prevent small independent producers from ever entering the market and contributing to the development of energy programs to satisfy the growing demand.

[32]            With respect, SE2 misapprehends and misconstrues what the Board is asserting and doing. It is obvious, when these underlined words are placed in their proper context, that the Board is not creating a new public convenience and necessity test or altering the test contained in the NEB Act.

[33]            What the Board is doing is simply determining under subsection 58.16(2) of the NEB Act the considerations that are relevant in determining whether a certificate should be issued and, as required under the NEB Act, it is assigning weight to these considerations. The Board is engaged in a balancing of the benefits and burdens resulting from the IPL and the Power Plant with a view to determining whether the public convenience and necessity test is met.

[34]            In the end, after having considered and weighed the various relevant factors, the Board concluded that, "on balance, the burdens of the IPL outweigh the benefits" and that it was "unable to come to the conclusion that the IPL is in the Canadian public interest and is and will be required for the present and future public convenience and necessity" (Reasons of the Board, p. 97). There was evidence to support that conclusion and, contrary to SE2's allegations, we are satisfied that the Board applied the proper test in reaching it.

3^rd Issue - Arbitrariness and discrimination

[35]            SE2 alleges that the Board erred in law when it stated that the only apparent limit on the exercise of its discretion in identifying relevant factors is good faith (Canadian National Railway v. Canada Steamship Lines, [1945] 3 D.L.R. 417). We agree that the discretion of the Board in this regard may be subject to review on grounds other than a lack of good faith, including a failure to take into account a consideration that it has identified as relevant. However, it bears repeating that the choice of relevant factors is for the Board alone, and the question of the choice of relevant factors is a decision upon which the Court will give the Board considerable deference.

[36]            It is common ground that the Board will have made a fatal error of law or jurisdiction if its decision is arbitrary or discriminatory. We agree.

[37]            The submissions of SE2 on the issue of arbitrariness are lengthy and detailed. We do not propose to deal with them in the same detail. We did, however, review very closely the portions of the Board's decision criticized by SE2 and the related evidence presented on all sides. That review revealed no irreconcilable inconsistencies in the Board's findings of fact or its conclusions. On the contrary, a fair reading of the Board's reasons discloses that the Board carefully and thoughtfully weighed and balanced a large number of factors it considered relevant, many of which favoured SE2, and many of which did not. We can find no indication that the Board was arbitrary in any respect.

[38]            Part of SE2's argument on arbitrariness was based on its assertion that the Board made certain statements for which there was no foundation in the evidence. Much of that argument focussed on the Board's statement of its understanding of the United States Federal Energy Regulatory Commission ("FERC") policy of open access and reciprocity (Reasons, page 41). We do not accept the argument of SE2 that the Board's appreciation of that issue was flawed by a lack of evidence or an error of law. The Board's expertise in such matters entitled it to express its understanding of the U.S. FERC policy without the intervention of this Court.

[39]            SE2 argues that the Board discriminated against it by applying different or novel standards to SE2's application. The record discloses no basis for that argument. On the contrary, the Board's approach seems to us to be based on well established principles, including those derived from the Board's own jurisprudence, applied to the unique facts of this case.

4^th Issue - NAFTA

[40]            Finally, SE2 argues that the Board's decision is fatally flawed because the Board failed to meet its obligation under section 120.1 of the NEB Act to "give effect to NAFTA". The Board considered NAFTA in the only two contexts in which it was raised, once in relation to its decision on the environmental effects motion, and once in the main decision in the context of a submission by SE2 that it was not open to the Board to use section 58.16 to protect Canadian energy producers from competition from U.S. producers. It appears to us that the Board agreed that its mandate did not permit it to protect any particular producer from competition.

[41]            SE2 does not suggest that it or any other party made any submission regarding NAFTA that was disregarded by the Board. The kind of NAFTA analysis that SE2 now suggests that the Board should have undertaken was never suggested to the Board itself. It is difficult to justify intervening in a decision on the basis that the Board failed to deal with something that was not raised in the course of a 30-day hearing, following years of pre-hearing procedures.

[42]            Given the specific submissions made to the Board in relation to NAFTA, and the Board's treatment of the issues to which those submissions were directed, we are unable to find any foundation for SE2's argument that the Board failed to give effect to NAFTA as required by section 120.1 of the NEB Act. Nor are we persuaded that there is any aspect of the Board's decision that offends any principle or objective of NAFTA. In that regard, we do not read NAFTA as compelling the Board to exercise its authority under section 58.16 to permit a U.S. energy producer to construct an IPL in Canada that the Board considers not to be justified by the statutory test of public convenience and necessity.

CONCLUSION

[43]            For these reasons, the appeal will be dismissed with costs to the respondents, except the NEB, which did not ask for costs.

(Sgd.) "Gilles Létourneau"

J.A.

(Sgd.) "Marc Noël"

        J.A.

(Sgd.) "Karen R. Sharlow"

J.A.

                                                       FEDERAL COURT OF APPEAL                                                       

                               NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                             A-462-04                      

STYLE OF CAUSE:                             Sumas Energy 2 Inc. v._National Energy Board and others

PLACE OF HEARING:                       Vancouver, B.C.

DATE OF HEARING:                         November 7 - 9, 2005   

REASONS FOR JUDGMENT BY THE COURT:    LÉTOURNEAU, NOËL, SHARLOW JJ.A.

RENDERED FROM THE BENCH BY:    NOËL, LÉTOURNEAU, SHARLOW JJ.A.

APPEARANCES:

Mr. Russell W. Lusk, Q.C.                                                           FOR THE APPELLANT

Mr. W.K. McNaughton

Mr. Robert J.C. Deane

Mr. George Copley, Q.C.                                                            FOR THE RESPONDENTS,

Mr. James G. Yardley                                                                  Province of British Columbia et al

Mr. Thomas R. Berger, Q.C.                                                        FOR THE RESPONDENTS,

Mr. Howard L. Mann                                                                   Society Promoting Environmental

Mr. Timothy J. Howard                                                                Conservation et al

Mr. Patrick K. McMurchy                                                            FOR THE RESPONDENT,

Abbotsford Downtown Business

Association

Mr. Andrew Hudson                                                                    FOR THE RESPONDENT,

Ms. Jody Saunders                                                                       National Energy Board

SOLICITORS OF RECORD:

Borden Ladner Gervais LLP                                                         FOR THE APPELLANT

Vancouver, British Columbia

Murdy & McAllister                                                                     FOR THE RESPONDENTS,

Vancouver, British Columbia                                                         Province of British Columbia et al

Sierra Legal Defence Fund                                                            FOR THE RESPONDENTS,

Vancouver, British Columbia                                                         Society Promoting Environmental

Conservation et al.

Palmer Gillen                                                                                FOR THE RESPONDENT,

Abbotsford, British Columbia                                                        Abbotsford Downtown Business

Association

National Energy Board                                                                 FOR THE RESPONDENT,

Calgary, Alberta                                                                           National Energy Board