Environmental Appeal Board

Transcription

1 Environmental Appeal Board APPEAL NO. 97-WAT-02 In the matter of an appeal under section 40 of the Water Act, R.S.B.C. 1996, c.483. BETWEEN: Cominco Ltd. APPELLANT AND: Deputy Comptroller Of Water Rights RESPONDENT BEFORE: A Panel of the Environmental Appeal Board David Brown, Chair DATE: October 10, 1997 PLACE: Victoria, B.C. APPEARING: For the Appellant: C.B. Johnson, Counsel For the Respondent: Livia Meret, Counsel APPEAL This is an appeal by Cominco Ltd. ("Cominco") of the decision of the Deputy Comptroller of Water Rights (the "Comptroller") dated March 25, 1997 concerning the calculation of certain water licence rentals and late payment penalties. These water licence rentals and late payment penalties as determined by the Comptroller are included in an Account Statement dated March 27, 1997 sent to Cominco by the Water Management Branch of the Ministry of Environment, Lands and Parks. THE DECISION OF THE DEPUTY COMPTROLLER In his Decision, the Comptroller set out how water rentals are (in the Comptroller's opinion) calculated during a sale of a power plant, including that: a) annual water rentals are payable by licensees on a calendar year basis in advance on the rental due date; b) in the case of power developments, water rentals payable for each calendar year are calculated on authorized capacity and on the total output from all power developments owned or operated by a single licensee during the preceding calendar year; c) where the total of annual rentals payable by a licensee on all licences exceeds $100,000, annual rentals are payable in 2 approximately equal instalments on March 31 and September 30; and

2 APPEAL NO. 97-WAT-02 Page 2 d) the first instalment due by March 31 is calculated using half of the output during the latest 12 month period for which data is available plus half of the capacity rentals for the full calendar year. The second instalment due by September 30 is the balance due after deduction of amounts paid in the first instalment. The Comptroller also stated that: (a) as the licensee in respect of the Brilliant Plant power development at the beginning of the 1996 calendar year, Cominco was liable for the following 1996 calendar year water rentals and charges: (i) the first 1996 calendar year instalment due March 31, 1996, which was paid in full by Cominco and which included: (A) half of the authorized capacity rental for the Brilliant Plant for that calendar year; and (B) half of the output from all power developments owned or operated by Cominco during the latest 12 month period for which data was available, which included the Brilliant Plant power development; (ii) the second 1996 calendar year instalment due September 30, 1996, which remained unpaid by Cominco, was the balance due for that calendar year after deducting the first instalment payments, and included: (A) the remaining half of the authorized capacity rental for the Brilliant Plant for that calendar year; and (B) the remaining half of the output from all power developments owned or operated by Cominco during the preceding calendar year (i.e. during the 1995 calendar year), which included the Brilliant Plant power development; (iii) any penalties payable because of Cominco's non-payment of the second 1996 calendar year instalment by September 30, 1996, notwithstanding the transfer of the Brilliant Plant power development to the Brilliant Power Funding Corporation (BPFC) on May 22, 1996; (b) in calendar year 1997, Cominco would be liable to pay water rentals for its authorized capacity for the 1997 calendar year and the total output from all power developments owned or operated by Cominco during the preceding calendar year (i.e. 1996). That output would include the output from the Brilliant Plant power development for the period January 1, 1996 to May 21, 1996 inclusive;

3 APPEAL NO. 97-WAT-02 Page 3 The Comptroller also confirmed with respect to BPFC that: (a) in calendar year 1997, BPFC would be responsible to pay water rentals for its authorized capacity for that calendar year and the total output from all power developments owned or operated by BPFC during the preceding calendar year (i.e. during the 1996 calendar year) which consisted of the output from the Brilliant Plant power development for the period May 22, 1996 to December 31, 1996 inclusive; (b) while he considered Cominco responsible for 1996 calendar year water rentals, even if BPFC were liable as a licensee for 1996 calendar year rentals, BPFC neither owned or operated a power plant in the preceding calendar year 1995, so it would not be entitled to rate reduction on output rentals payable for calendar year 1996 on the first 250,000 megawatt-hours (Mwh) of the output; and (c) BPFC would be entitled to rate reduction on output rentals payable for calendar year 1997 on the first 250,000 megawatt-hours (Mwh) of the output. In his decision the Comptroller also said that, based on his understanding that Cominco and BPFC had made arrangements between themselves with respect to payment of the 1996 calendar year rentals, that: (a) in the circumstances he considered Cominco and BPFC jointly liable for payment of the outstanding Brilliant Plant rental account; and (b) he would be prepared to accept payment from BPFC, including on behalf of Cominco, but that the rental calculation remained unchanged. REVIEW OF EVIDENCE Cominco called Paul Huszti as a witness and the Comptroller called Susan Mary Lewis, Dr. Balachandran and the Deputy Comptroller, Prad Kharé, as witnesses at the hearing. There was little in the evidence when the evidence was relevant that was controversial or even in dispute. FACTUAL FINDINGS Cominco is the owner of the Waneta Dam located on the Pend d'oreille River and, until May , was the owner of the Brilliant Dam located on the Kootenay River. Cominco apparently has owned these dams from the time of their construction, and until and including for the year 1995, paid all water licence rentals for these dams. The Brilliant Dam was sold by Cominco effective May 22, 1996 to the Brilliant Power Funding Corporation. The Brilliant Power Funding Corporation, an affiliate of Columbia Power Corporation and Columbia Basin Trust, has been the owner of the Brilliant Dam since May 22, 1996.

4 APPEAL NO. 97-WAT-02 Page 4 Prior to its sale of the Brilliant Dam Cominco held water licences 14089, 47380, and (the "Brilliant Water Licences"), which were for water used in connection with the Brilliant Dam. Cominco continues to own the Waneta Dam on the Pend d'oreille River and, in respect of that dam, holds water licences 17774, 17862, 47383, and (the "Waneta Water Licences"). In 1995 and in previous years Cominco paid the water rentals for the water used in connection with the Waneta Water Licences and the Brilliant Water Licences in two instalments; the first of these instalments was due on March 31 of each year and the second of which instalments was due on September 30 of each year. In 1995 (in like manner as had presumably occurred in previous years) Cominco received a letter from the Water Management Division dated November 10, 1995 requiring it to prepare a statement setting out the total amount of energy generated (megawatt-hours) by all its powerplants during the period November 1, 1994 to October 31, In response to the November 10, 1995 letter Cominco prepared and sent to the Water Management Division a document described as "Annual Return (Power), November 1995 Preliminary For Year 1995". Prior to March 29, 1996 Cominco received a statement dated January 13, 1996 from the Water Management Branch. The statement dated December 15, 1995 is headed "November Preliminary For Year 1995, New Water Licence Rentals Determination (1996)" set out the "Total Billing" (for 1996) as $10,434, and that the March 31, 1996 payment was $5,217, and the September 30, 1996 payment was the same. That statement was based on the information provided by Cominco to the Water Management Branch in the "Annual Return (Power), November 1995 Preliminary For Year 1995". The amount required to be paid by Cominco on or before March 31, 1996 was, in fact, paid in full by Cominco. On or about March 26, 1996 Cominco sent to the Water Management Branch an "Annual Power Return" which set out the power generation from its water licences during the calendar year, Following the sale of the Brilliant Dam, Cominco gave notice in a letter dated May 22, 1996 to the Comptroller of Water Rights that the Brilliant Dam had been sold. In September, 1996 Cominco received a statement dated August 16, 1996 from the Water Management Branch. Cominco paid the amount of $3,378, in respect of the statement dated August 16, The amount paid by Cominco represented the amount Cominco considered to be due after taking into account the sale of the Brilliant Dam in other words it paid the amount which was due on account of the power operations which it still owned. It did not pay for water used in connection with the Brilliant Water Licences.

5 APPEAL NO. 97-WAT-02 Page 5 On October 10, 1996 the Water Management Branch advised BPFC that the transfer of licences and Crown land permits for the Brilliant Plant had been recorded. In March, 1997 Cominco received a statement dated March 27, Cominco paid the sum of $3,199, Cominco's calculation of the amount due in 1997 relates to water used at the Waneta Dam, and pursuant to the Waneta Water Licences, and not to water used at the Brilliant Dam pursuant to the Brilliant Water Licences. The following summarizes the procedures which appear to have been followed over the years in calculating power rental accounts for licensees. (a) (b) (c) In the Fall, Water Management officials write to licensees for power purpose requesting information on output during the latest 12 months. Based on the information provided by licensees, Water Management prepares the first instalment rental account statement for the upcoming calendar year which is mailed to licensees in early January in the new calendar year. In the case of licensees having to pay in excess of $100, in rentals, the first instalment of approximately one half the annual rental is due on March 31 of the new calendar year. Early in the new calendar year, a licensee must file an Annual Return (Power) showing installed hydro-electric capacity and total hydro-electrical production or output from all power developments owned or operated by a single licensee during the preceding calendar year. This information is used to finalize the total power rentals payable in that calendar year, based on authorized capacity for that calendar year and based on output in the preceding calendar year. Any required adjustments are made at that time to take into account any difference between the information provided in the Annual Return (Power) and the preliminary information provided by licensees in the previous Fall. Once final calculations have been made of the total power rentals payable for that calendar year, the second instalment rental account statement is sent to licensees by the Water Management Branch for the balance due for that calendar year after taking into account what was paid in the first instalment. The second instalment rental account statement is usually sent in August or September to licensees. The second instalment is due September 30 of that calendar year. Exhibit "6" sets out the amount which the Comptroller now claims is due and owing by Cominco after making various adjustments for other account matters between the parties. That amount is $4,912, ISSUES It is the position of the Comptroller that the ownership of a dam on January 1 of a year determines the identity of the party responsible for payment of any water licence rentals associated with that dam for the whole of that year.

6 APPEAL NO. 97-WAT-02 Page 6 It is also the position of the Comptroller that the water licence rentals being billed to Cominco in 1997 in respect of the Waneta Water Licences should be calculated with reference to water used at both the Waneta Dam and the Brilliant Dam for the periods of time that Cominco owned these dams in 1996 notwithstanding that Cominco no longer owned the Brilliant dam in 1997 and that the water licences associated with the Brilliant Dam passed to Brilliant Power Funding Corporation in In other words, it is the position of the Comptroller that in 1997 Cominco should be billed for water use in 1997 based on its power generation from the Waneta Dam for the entire year and for the Brilliant Dam from January 1, 1996 to the date of sale, May 22, Both parties acknowledge that the water licence rentals set out in the statements of January 13, 1996 and August 16, 1996 related to the year 1996 and were for the use of water in 1996, and that the water licence rentals set out in the statement of March 27, 1997, relate to the year 1997 and are for the use of water in LEGAL REVIEW It has often been stated that the interpretation of statutes commences with the principle that wills, statutes and all written instruments, should adhere to the grammatical and ordinary sense of the words unless that leads to some absurdity or repugnance or inconsistency with the rest of the document, in which case the grammatical and ordinary sense of the words may be modified so as to avoid repugnance, absurdity and inconsistency, but no farther. The leading Canadian authority on this question now is the recent decision of the Supreme Court of Canada in R. v. Mclntosh, [1995] 1 S.C.R. 686 where it was stated as follows: In resolving the interpretative issue raised by the Crown, I take as my starting point the proposition that where no ambiguity arises on the face of a statutory provision, then its clear words should be given effect. This is another way of asserting what is sometimes referred to as the "golden rule" of literal construction: a statute should be interpreted in a manner consistent with the plain meaning of its terms. Where the language of the statute is plain and admits of only one meaning, the task of interpretation does not arise (Maxwell on the Interpretation of Statutes (12th ed. 1969), at p. 29). Other principles, dealing with the interpretation of statutes, recognize that, "the words of the statute are not restricted to what are sometimes called their ordinary or literal meanings, but extended flexibly to include the most reasonable meaning which can be extracted from the purpose and object of what is sought to be accomplished by the statute. The very concept of interpretation connotes the introduction of elements extrinsic to the words themselves". Waugh v. Pedneault (1949) 1 W.W.R. 14 (B.C.C.A.) (dealing with Forest Act of B.C.).

7 APPEAL NO. 97-WAT-02 Page 7 The following statement from Maxwell on the Interpretation of Statutes, 12th ed. (1969), p. 203, was quoted in Carpenter v. Vancouver (City) Police Board [1986] B.C.J. No (Q.L.) (B.C.C.A.) a decision of the British Columbia Court of Appeal: Not only are unreasonable or artificial or anomalous constructions to be avoided: it appears to be an assumption (often unspoken) of the courts that where two possible constructions present themselves, the more reasonable one is to be chosen. Where such an issue of absurdity or ambiguity or internal contradiction arises it has been stated that the statute should be so interpreted that it is in harmony with the words, intention and object of the regulations when read in total context. Where, however, the language of the statute does not permit two possible interpretations then it does not matter if that language leads to what may seem to some to be absurd results. Lysyk J. of the B.C.S.C. in Endeavour Developments Ltd. v. Comox-Strathcona (Regional District), [1995] B.C.J. No. 1071, (Q.L.)(B.C.C.A.), Vancouver Registry No. A said as follows: I would adopt the following proposition: where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be (Maxwell on the Interpretation of Statutes, supra, at p. 29). The fact that a provision gives rise to absurd results is not, in my opinion, sufficient to declare it ambiguous and then embark upon a broad-ranging interpretative analysis. In Johnson v. Life Insurance Council of Saskatchewan, [1997] S.J. No. 29 (Q.L.)(Sask. Q.B.) Justice Matheson quoted from Dreidger "On the Construction of Statutes": [para 31] In Driedger On the Construction of Statutes (3d), Ruth Sullivan (Toronto: Butterworths, 1994) it is stated (p. 35) that the purposive approach to statutory interpretation is much favoured by modern courts. [para 32] The purposive approach presumes that all legislation has a purpose. The legislative purpose should be taken into account in every case and at every stage of the analysis. Interpretations consistent with, or which promote, the legislative purpose, should be preferred. And the ordinary meaning of a provision may be rejected in favour of an interpretation more consistent with a purposive intention if the preferred interpretation is one which the words are capable of bearing. The Comptroller's "Book of Authorities" contains several cases concerning judicial interpretation of various "taxation" statutes. Whether the amounts charged in the instant case are "royalties" or "taxes" the following principles (first four of five) from

8 APPEAL NO. 97-WAT-02 Page 8 one of these cases; namely, CUQ v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R.3 are applicable: (i) (ii) (iii) (iv) The interpretation of tax legislation should follow the ordinary rules of interpretation. A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is teleological approach. The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined provisions. Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute. The amount due as water licence rentals is governed by the provisions of the Water Act R.S.B.C. 1996, c. 483 and the provisions of the Water Regulation (B.C. Reg. 204/88), as amended (referred to hereafter as the "Water Act Regulations"). The key section is section 45 of the Water Act which provides for the establishment, by regulation, of a tariff of fees, rentals and charges to be paid by licensees for the diversion and use of water, the times of payment and the imposition of interest for failure to pay rentals. The fees, rentals and charges are payable to the Comptroller of Water Rights. Subsections 45(1) and 45(2) read as follows: 45 (1) The Lieutenant Governor in Council may, by regulation, establish a tariff of the fees, rentals and charges payable in respect of applications, petitions, claims, complaints, proceedings, licences, approvals, permits and other things filed, applied for, taken, or issued under this or any former Act, and in respect of water diverted or used from a stream, whether diverted under authority of a licence or under a special or private Act or without authority. (2) An applicant, petitioner, claimant, complainant and other person who files an application, petition, claim or complaint, or takes a proceeding under this Act, and a person holding a licence, approval or permit, and a person who diverts or uses water from a stream is liable to the government for the fees, rentals and charges in respect of the application, petition, claim, complaint, proceeding, licence, approval, permit, thing or water. In MacMillan Bloedel Limited v. R. In Right Of British Columbia, (1985), 69 B.C.L.R. 11 (B.C.S.C.) Spencer J. held that the water rentals charged pursuant to section 45 of the Water Act is a "royalty" rather than a "tax". At page 16 Justice Spencer stated as follows: In my opinion s. 45 of the Water Act permits the government of British Columbia to increase charges for the use of water not simply to cover

9 APPEAL NO. 97-WAT-02 Page 9 administrative or regulatory costs but for the purpose of raising revenue generally. The section does so by its inclusion of the following words: 45(1) The Lieutenant Governor in Council may, by regulation, establish a tariff of the rentals and charges in respect of water diverted or used from a stream and every person who uses water from a stream is liable to the Crown for the rentals and charges in respect of the water. Further on at page 16 Here the increases are imposed by Order in Council, but they are imposed by government qua owner of the resource pursuant to the right given to government by s. 45 of the Water Act. Every holder of a water licence in the province takes that licence knowing that government has the right to vary the tariff of fees, rentals and charges. Although the examples of water licences filed by Exs. 17 and 18 do not refer to the amount of rent for the use of water, those licences and indeed all licences in the province are taken subject to the provisions of the Water Act, including the Crown's right to increase the rent from time to time. Thus the increases imposed here were imposed as a term or implied term of the licence contract That fact that user of water is not charged for the quantity of water used but rather on the basis of the amount of power produced made no difference. On page 18: The rent now charged for the use of water for generating power is assessed in relationship to the amount of power which may be generated rather than to the quantity of water used. That does not mean, however, that the rent is not for the use of water. It does not cease to be a royalty for water simply because it is rated by reference to the production of power. There are numerous oil and gas cases which have considered the definition of a royalty. In Ko-Ken Mining Ltd. v. British Columbia (Energy, Mines and Petroleum Resources), [1995] B.C.J. No. 71 (Q.L.)(B.C.S.C.) Justice Ryan said as follows: The definition of a royalty [para 27] The phrase "royalty or similar payment" was not defined in the Mineral Resource Tax Act. Black's Law Dictionary [See Note 1 below] defines "royalty" as follows: Compensation for the use of property, usually copyrighted material or natural resources, expressed as a percentage of receipts from using the property or as an account per unit produced. A payment which is made to an author or composer by an assignee, licensee or copyright holder in respect of each copy of his work which is sold, or to an

10 APPEAL NO. 97-WAT-02 Page 10 inventor in respect of each copy of his work sold under the patent. Royalty is share of product or profit reserved by owner for permitting another to use the property. [para 28] The nature of a "royalty" was also discussed in The Minister of National Revenue v. Wain-Town Gas and Oil Company Limited, [1952] S.C.R The issue in that case was whether certain payments could be described as income for purposes of the Income Tax War Act (R.S.C. 1927, c. 97 s. 3(1)(f)). In discussing the meaning to be attributed to "royalty" Kerwin, J. (for the majority) said this at p. 382: it has a special sense when used in mining grants or licences signifying that part of the re addendum which is variable and depends upon the quantity of minerals gotten. It is a well-known term in connection with patents and copyright. In a business sense in Canada it covers the payments which were to be, and were, paid monthly by way of percentages of the actual gross sales of natural gas under the franchise. Justice Ryan quoted from the British Columbia Court of Appeal case, In Re Milbourne: [para 32] More recently, in British Columbia in Re Milbourne (1977), 4 B.C.L.R. 245 (B.C.S.C.) Meredith, J. dealt with the meaning of "royalty" for purposes of the Mining Tax Act (R.S.B.C c. 247 s. 3(1)). He said this at p. 248: In Ross v. M.N.R. 50 D.T.C. 775 Cameron J. described a royalty (p.778): Royalties, in reference to mines or wells in all the definitions, are periodical payments either in kind or money which depend upon and vary in amount according to the production or use of the mine or well, and are payable for the right to explore for, bring in to production and dispose of the oils or minerals yielded up. I have not been referred to a more useful or comprehensive definition than this. Justice Ryan continued: [para 33] This definition is consistent with, and may expand slightly, the majority judgments in the Wain-Town Gas and Oil case. For purposes of the Mineral Resource Tax Act I accept the definition of "royalty" in Re Milbourne. Four elements are thus required:

11 APPEAL NO. 97-WAT-02 Page That payments be made for the right to explore for and bring into production minerals yielded up. 2. That the payments be made in money or kind. 3. That the payments are periodic, and, 4. That the payments depend upon and vary in amount according to the production or use of the mining property. It is also necessary to consider the relationship between the enabling statute (in this case the Water Act) and the regulation. The legal principles concerning this relationship are succinctly set out in Morgentaler v. Prince Edward Island (Minister of Health and Social Services), [1995] P.E.I.J. No. 20, (Q.L.)(P.E.I.S.C.???? [para 46] It is a basic principle of law that subordinate legislation cannot conflict with its parent legislation: Friends of the Oldman River Society v. Canada Minister of Transport and Minister of Fisheries and Oceans, [1992] 132 N.R. 321 (S.C.C.) at p Executive legislation that conflicts with its enabling legislation is invalid, unless there is expressed authority to override the enabling legislation: Reference as to Validity of Regulations in Relation to Chemicals, [1943] S.C.R.1. [para 47] In determining whether the content of executive legislation is authorized, it is not enough to consider its enabling provision. Executive legislation must fit into the legal system as a whole. If its content is inconsistent with other parts of the system, it must usually give way. See Keyes, Executive Legislation at p [para 48] As a general rule, a regulation that is inconsistent with a statute is invalid to the extent that it conflicts with the empowering statute. Nothing in it will be considered to sanction a departure: Belanger v. The King (1916), 54 S.C.R. 265; Driedger, Construction of Statutes 2nd Ed., 1983, at p. 323; Interpretation Act, R.S.P.E.I Cap. 1-8, s. 38(1)(a). To be valid, a regulation must be authorized and consistent with the legislation as a whole. As expressed in Keyes, Executive Legislation at p. 224, executive legislation can be struck down for inconsistency with the implicit purposes of the enabling authority. [para 49] It is a rule of construction that where legislative power, whether primary or subordinate, is capable of receiving a meaning according to which its operation is restricted to matters within the power of the enacting body, it will be interpreted accordingly: MacKay v. The Queen (1965), 53 D.L.R. (2d) 532 (S.C.C.) at pp [para 50] The purposive approach to interpretation of executive legislation mediates between strict and broad interpretation by resolving choices about the meaning in favour of the interpretation

12 APPEAL NO. 97-WAT-02 Page 12 that best serves the purposes of the legislation. It builds on the text of the legislation. To some extent it is assisted by the provisions in interpretation statutes requiring that legislation be given a "fair, large and liberal" interpretation. This approach implies judicial deference to delegates of executive legislative authority in pursuing the objectives of the legislation: Keyes, Executive Legislation, at pp. 163 ff. THE MATTER OF JOINT AND SEVERAL LIABILITY The Comptroller makes the following submission: In the circumstances, the Comptroller looks to both Cominco and BPFC for payment of the outstanding 1996 calendar year and 1997 calendar year accounts in respect of the Brilliant Plant and considers them to be jointly responsible for that payment. The Panel does not accept the proposition that there is either joint or joint and several liability for the payment of the water rates. There is absolutely nothing in the Water Act or the Water Act Regulations that impose "joint liability" on the parties. This is an "either or" situation. Either Cominco or Brilliant is liable for the disputed portion of 1996 and either Cominco or Brilliant is liable for RESPECTING THE 1996 WATER RENTALS Cominco submitted that the responsibility for payment of water licence rentals is determined by ownership of the dam and the identity of the person holding the water licences pursuant to which the water was used and that accordingly it was responsible only for the water licence rentals associated with water used at the Brilliant Dam, and pursuant to the Brilliant Water Licences, up to May 21, 1996 which Cominco fully paid. The Comptroller, on the other hand, submitted that Sections 7, 12, 16, 20 and 21 of the Regulation impose an obligation to pay power rentals on a calendar year basis and that rentals are payable in advance for diversion, use and storage of water for the whole of a particular calendar year. It is the Comptroller's position that this obligation to pay rentals arises at the beginning of each calendar year, even though in the case of licensees with accounts over $100,000 instalment due dates are March 31 and September 30 of each calendar year. The Comptroller argued that the critical factor in applying the Regulation is who is the licensee at the beginning of the calendar year. Counsel for Cominco referred to Section 16 of the Water Act which provides that a licence that is made appurtenant to any land, mine or undertaking passes with a conveyance or other disposition of the land, mine or undertaking and that accordingly the Brilliant Water Licences passed to Brilliant Power Funding Corporation on May 22, 1996 when the Brilliant Dam, and the land on which it was located were sold by Cominco. The flaw in Cominco's argument is that the Water Regulation (the "Regulation") clearly states that annual water rentals are payable by licensees on a yearly basis in

13 APPEAL NO. 97-WAT-02 Page 13 advance on the rental due date. Section 7(2) of the Regulation, B.C. Reg. 204/88, says that (2) A first rental, calculated by adjusting the appropriate annual rental according to the number of days left until the rental due date, shall be payable, and the second and every subsequent rental shall be payable annually in advance on the rental due date. The rental due date is the date determined by the comptroller as the date on which rentals shall be due. Section 7(1) of the Regulation states as follows: 7. (1) On issue of a licence, the comptroller shall determine the day of the year on which rentals shall be due. Section 12 of the Regulations allows the water user to pay in two instalments: (12) Where the total of annual rentals payable by a licensee on all licences exceeds $100,000 annual rentals are payable in 2 approximately equal instalments on March 31 and September 30; This provision is no doubt intended to relieve the onerous obligation placed on a large water user to pay ahead of time for water not used (and hence not yet being a source of revenue). The Panel accepts the definition of "instalment" from Jowitt's Dictionary of English Law as "a portion of a debt". When a debt is divided into two or more parts, payable at different times, each part is called an instalment, and the debts is said to be payable by instalments." It is not ownership of a dam on January 1 that is determinative of responsibility for payment of water licence rentals on licences associated with that dam but rather ownership of the dam as of the "rental due date" which is an annual date determined by the Comptroller. In this case the rental due date is that date so designated on the Comptroller's account statements which for 1996 was March 31, As noted above section 12 of the Regulation defers the payment, which would otherwise be due on the rental due date, to March 31 for the first half and to September 30 for the second half. Accordingly, the Panel finds that as of the rental due date, Cominco was the licensee in respect of the Brilliant Plant, as well as the Waneta Plant. Accordingly, Cominco would be responsible for all of the 1996 calendar year rentals calculated in accordance with the Regulation and payable in two instalments in respect of those two power developments. Cominco remains liable for the second 1996 calendar year instalment due September, 30, 1996, notwithstanding its transfer of the Brilliant Plant effective May 22, 1996 and notwithstanding any adjustments made between Cominco and BPFC with respect to the rentals for the 1996 calendar year.

14 APPEAL NO. 97-WAT-02 Page 14 RESPECTING THE 1997 RENTALS Section 16 of the Regulation is headed "Determination of fees, rentals and charges". Section 16(2) says (in part): (2) The comptroller may determine the fees, rentals and charges using (a) records of operation submitted by the licensee of the power development, Section 16(3) says (3) Annual rentals shall be determined at the appropriate rates according to the categories of power use. Section 16(4) of the Regulation states (4) For the commercial and general categories, there shall be separate rental charges at the rates for the calendar year when the determination is made, with the charge or charges being based on (c) subject to subsection (5), the total of the output from all power developments owned or operated by a single licensee during the preceding calendar year. The Comptroller submits that section 16(4) of the Regulation means that the water licence rentals being billed to Cominco in 1997 in respect of the Waneta Water Licences should be calculated with reference to water used at both the Waneta Dam and the Brilliant Dam for the periods of time that Cominco owned these dams in Cominco's water bill for 1997 would be based not only on the amount of power (according to the Power Return that it filed) that it produced in 1996 from its Waneta Dam but also the amount of power that it produced from the Brilliant Dam from January 1, 1996 to May 22, Counsel for Cominco gave several examples of how the Comptroller's interpretation of the regulation would produce various anomalous results. At the beginning of 1996 Cominco was paying water rentals in connection with three different dams; namely, the Waneta Dam, the Brilliant Dam and tiny Camp Creek (the Camp Creek billing was based only on its power capacity and not on power generated). Camp Creek had a capacity in 1996 of 20 kw and billing for water used in connection with such was a minuscule $ For example, if the Panel was to accept the Comptroller's interpretation of Regulation, if Cominco had sold all of its dams on December 31, 1996, then it would not be subject to paying a water rental in 1997 because it would not be a licensee as of January 1, 1997 but if it sold all of its dams but for the tiny Camp Creek as a licensee in 1997 it would be charged based on all of its power generation in 1996 from all of its dams. On the other hand the purchaser of the dams would not have

15 APPEAL NO. 97-WAT-02 Page 15 to pay any water rental in 1997 because it specifically had no power generation in the previous year. The Comptroller's counsel suggested that what was important were the facts of this case and theoretical situations. In examining whether or not the interpretation placed on section 16(4) of the Regulation by the Comptroller is supportable it is appropriate to examine how that interpretation would apply in different fact situations. This process is part of determining whether the interpretation is reasonable or whether it would instead lead to unfair results or absurdities. The Comptroller's interpretation of the Regulation leads invariably to absurdities. The "examples" given by Cominco's solicitor amply illustrate the "unfairness" and perhaps "absurdity" that results from the Comptroller's interpretation of section 16(4) of the Regulation. Even if we look only at the instant case is it fair or reasonable that Cominco would for the first 142 days of 1997 be charged for approximately double the amount of water that it uses? The Regulation provides a system for charging for the use of water. This is in accordance with section 45 which reads in part "The Lieutenant Governor in Council may, by regulation, establish a tariff of the fees, rentals and charges payable in respect of water diverted or used from a stream". An important part of the system set out in the Regulation is that the Government wants to collect its royalty for water "in advance" of its use. The significant words in the Act and regulation are "use" and "in advance". It is necessary to look at the purpose of section 16 of the Regulation. This purpose is obvious. Because it is not possible to bill a water user in advance for the amount of power it will generate in that year - that figure not being known - it is necessary to base the figure on the power generated the previous year... the assumption being that its power generation during the year at hand will approximate its power generation for the preceding year. The process to determine the annual rental for a major power facility as set forth in the Regulation can be summarized as follows: a) Firstly the holder of a single licence is asked to provide the amount of power generated by a facility connected with the licence for a one year period ending some time in the previous year. b) These figures allow the Comptroller to estimate the water rental for the upcoming year. c) Early in that year an estimated bill for water rental is sent out - this bill should be sent out to the holder of the licence as of that date.

16 APPEAL NO. 97-WAT-02 Page 16 d) Where four licences are held in connection with a single facility then the annual water rental bill should be sent out to the owner of that facility at that time. e) The holder of the licences for the facility is then required to pay half of the estimated bill for the year. f) Once the actual power produced by the facility in the previous calendar has been determined, then the annual billing can be finalized. On September 30 of the year the balance of annual bill is required to be paid. The above interpretation of section 16(4) of the Regulation is consistent with the definition of "licence" and "licensee" in section 1 of the Water Act. Those definitions are as follows: "licence" means a licence issued under this or a former Act; "licensee" and "holder of a licence" mean an owner of any land, mine or undertaking with respect to which a licence is issued under this or a former Act;" The meaning of "licensee" is that of a holder of a licence. It is incorrect to equate "licensee" with Cominco generally. In the instant case for 1997 licensee for the purposes of the Brilliant Dam means the holder of those four licences held in connection with the Brilliant Dam and for the purposes of the Waneta Dam means those four licences held in connection with the Waneta Dam. It is also consistent with the notion of a royalty in a commercial context. A royalty is charged for the use of a resource. This is evident from the cases cited above concerning the meaning of "royalty". Royalty is linked to use no matter whether the actual royalty paid is determined by "percentages of the actual gross sales", "percentage of receipts from using the property or as an account per unit produced" or "a payment which is made respect of each copy which is sold. As a royalty the Government should expect to collect and the user should expect to pay for water used, not for double the amount of the water it uses just because in the previous year (in the first 142 days) it produced double the amount of power on account of THEN owning an additional dam. As noted above it is a rule of construction that where legislative power, whether primary or subordinate, is capable of receiving a meaning according to which its operation is restricted to matters within the power of the enacting body, it will be interpreted accordingly. Applied to the instant case it means that section 16(4) should be construed in a manner which is consistent with section 45 of the Act which specifically refers to the "use" of water. Accordingly the panel accepts the submission of Cominco that water licence rentals are "with respect to a licence" (as defined in section 1 of the Regulation), or with respect to licences, and the use of water for which a rental is billed must be for

17 APPEAL NO. 97-WAT-02 Page 17 water used pursuant to the particular licence or licences. As of December 31, 1996 BPFC was the holder of the four licences for the Brilliant Dam and Cominco was the holder of the four licences for the Waneta Dam. Thusly the billings to Cominco in 1997 should relate only to the Waneta Water Licences, and not water used pursuant to the Brilliant Water Licences (which Cominco did not hold in 1997). It was suggested by one of the Comptroller's witness that the Comptroller's interpretation of section 16 of the Regulation allowed it to "catch up" in its billing that in the first year of a facility's operation it does not bill fully for the water used. As was pointed out by Cominco's counsel this approach is contrary to the Regulation, specifically section 17 which says "The first annual rental is payable on issue of the licence or upon commencement of construction of the works authorized under the licence, whichever occurs first." There was no evidence at this hearing as to whether or not Cominco had a tax holiday in its first year of operation. If, however, the Comptroller chose not to bill for that first year of operation, there is absolutely nothing in the Regulation which allows the Comptroller to bill in order to "catch up"; i.e. retroactively. DECISION The billing sent to Cominco for 1996 water rentals is confirmed; that portion of the billing sent to Cominco for 1997 water rentals for water used in connection with the Brilliant Dam from January 1, 1996 to May 22, 1996 is set aside. The penalties assessed on the 1996 billing are upheld and the penalties assessed on the 1997 billing are set aside. The 1997 billing for the Brilliant Dam should have been submitted to Brilliant Power Funding Corporation on or before March 31, Whether or not the Comptroller can now, in effect, retroactively bill BPFC is not an issue to be decided by this panel. There certainly would be no basis for assessing any penalties in connection with the 1997 billing for the Brilliant Dam. With respect to the actual billings sent to Cominco there was also some confusion as to whether or not a portion of the penalty included in the 1997 billing to Cominco was with respect to a payment which was made in a timely fashion by Cominco but which at first instance applied (by the Ministry's computer) to the billings in dispute. I trust that the parties can sort this out; however, if any issue does arise with respect to penalties assessed the parties can ask for further directions from this Panel. David Brown, Panel Chair Environmental Appeal Board December 10, 1997