Canada: Big News On Hydro One

Last Updated: June 24 2015
Article by Paul Seaman

Ontario has announced it will sell part of both the transmission and distribution components of Hydro One. An initial public offering of 15 per cent is expected by 2016, with further shares to be sold over time. Ontario intends to retain a 40 per cent ownership stake.

This decision follows the final report from the Advisory Council on Government Assets (Report). The Report and the decision have triggered responses from various stakeholders, including First Nations leaders, some of whom have claimed a lack of required consultation about the sale.

Could First Nations demand consultation on the Hydro One privatization?

The duty to consult is triggered when the Crown has real or constructive knowledge of Aboriginal rights, and contemplates a decision which has the potential to adversely affect to those rights. The leading case is the Rio Tinto decision,1 in which the Supreme Court of Canada considered whether the duty was triggered in relation to a power purchase agreement. In considering the case, the Court cast a wide net in relation what could qualify as 'government action': 

Government action is not confined to decisions or conduct which have an immediate impact on lands and resources. A potential for adverse impact suffices. Thus, the duty to consult extends to 'strategic, higher level decisions' that may have an impact on Aboriginal claims and rights.2

Some First Nations leaders are saying that the Hydro One decision is such a "strategic, higher level decision" because it may "set(s) the stage for further decisions that will have a direct adverse impact on land and resources." Given the nature of Hydro One's business in managing new and legacy transmission and distribution projects, and the impact that such projects can have on lands and resources, it may be the decision to privatize could fit within this definition.

The case law has also specifically considered the issues of whether authorizing a change in control over resources may trigger the duty. In one such case, a community successfully challenged British Columbia's approval of the transfer of control of a company which held tree farm and forest licences from a Crown corporation to a private entity. The Court held that this decision triggered the duty because it changed the identity of the controlling mind managing the resource, and its governing philosophy.3

In another case,4 B.C. awarded the right to develop a ski area plan to a new development group without consulting or observing previously agreed upon procedural requirements. Again, the Court concluded that the duty had been triggered.5

The Hydro One sale may be analogous to these cases in certain respects. Arguably, since Crown control of Hydro One will diminish in favour of private actors, the new entity's philosophy and approach may indeed also change.

How might Ontario respond to an assertion that the duty is triggered?

There are clear counter-arguments as well. For example, the decision to privatize may not itself have any impact on Aboriginal rights or claims, now or later. A similar argument was recently successfully advanced by the Crown before the Federal Court of Appeal.6 In that case, Canada's decision to sign a trade agreement with the People's Republic of China addressing investor protection was challenged on the basis that to maximize its position under the agreement, the Crown may be required to compromise its duty to protect Aboriginal rights.

However, the Court rejected this argument as being speculative in nature.7

If the duty exists, might the government's current proposals be sufficient?

If the duty is triggered, much could turn on whether the Crown will have ongoing involvement and oversight. For example, if it can be shown that the new structure will contain reasonable platforms and oversight such that future consultation can occur, it could also be argued that this may serve to meet the duty.

The Report proposes a number of specific protections and oversights, including:

  • Strengthening the mandate and powers of the Ontario Energy Board
  • Ensuring that the province has a number of directors equal to its proportionate share of the outstanding votes, subject to a maximum of 40%
  • Requiring the new entity to annually confirm the its Chair and the CEO by a two-thirds vote
  • Keeping the new company's head office, Grid Control Centre, CEO, and strategic decision-making management and functions in Ontario
  • Establishing a new Hydro One ombudsman

None of these measures appears to have been implemented with a specific view to Aboriginal concerns. Consequently, First Nations may call upon Ontario to establish more substantial and well-defined protections. In the Wii'litswx decision,8 for example, future open-ended measures to protect Aboriginal interests at later, operational stages were not sufficient.

It is uncertain whether even an expanded role for the OEB may be relevant, sufficient, or appropriate. Indeed, the courts have been clear that it is generally inappropriate for Crown consultative and/or fiduciary obligations to be imposed on independent tribunals.9

The ombudsman, by-laws and Regulations may also not suffice if they do not make sufficient provision for the issue of consultation; indeed, courts have recently been unforgiving of regulatory regimes which fail to do so. In the Ross River Dena Council case,10 for example, the Yukon Court of Appeal held that a mineral staking regime was insufficient. Under the scheme, to stake a claim, an individual only had to provide the mining recorder with three things: a plan of the location, the fee, and a sworn application. The prospector then automatically received a record of mineral claim. The Court was critical of the non-discretionary scheme, which enabled activity on First Nations' land without meaningful consultation:

Statutory regimes that do not allow for consultation and fail to provide any other equally effective means to acknowledge and accommodate Aboriginal claims are defective and cannot be allowed to subsist.11

The ongoing changes at Hydro One have attracted considerable attention from a range of stakeholders; it is not surprising that among them, are Ontario's First Nations.

Footnotes

1 Rio Tinto Alcan Inc v Carrier Sekani Tribal Council, 2010 SCC 43.

2 Ibid at para 44.

3 Gitxsan Houses v British Columbia (Minister of Forests) 2002 BCSC 170 at para 82. This principle was affirmed in two subsequent decisions involving related parties. Gitanyow First Nation v British Columbia (Minister of Forests), 2004 BCSC 1734 (CanLII) and Wii'litswx v British Columbia (Minister of Forests), 2008 BCSC 1139 (CanLII).

4 Squamish Nation et al v The Minister of Sustainable Resource Management et al, 2004 BCSC 1320 (CanLII).

5 Ibid at para 99.

6 Hupacasath First Nation v Canada (Attorney General) 2015 FCA 4 (CanLII).

7 Ibid at para 97.

8 Wii'litswx v. British Columbia (Minister of Forests), 2008 BCSC 1139 (CanLII).

9 See Québec (Attorney General) v. Canada (National Energy Board), [1994] 1 SCR 159 and Standing Buffalo Dakota First Nation v. Enbridge Pipelines Inc., 2009 FCA 308. The independence of administrative tribunals was affirmed in  the Carrier Sekani decision, which provided however, that legislatures could delegate the duty to consult to tribunals, but must do so expressly.

10 Ross River Dena Council v Government of Yukon, 2012 YKCA 14 (CanLII).

11 Ibid at par 37.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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