Executive Summary: Key Legal and Evidentiary Issues

• Richmond and Surrey challenged BC Hydro's decisions to pay reduced grants in lieu of property taxes (GILT) for 2022–2024, departing from decades of invariable practice of paying the maximum permitted amount.

• Both municipalities had increased their Utilities Class tax rates by approximately 41%, prompting BC Hydro to base GILT calculations on earlier, lower tax rates rather than the current ones.

• BC Hydro justified the reduced payments by citing concerns about fairness to provincial ratepayers, cost management obligations, and the precipitous nature of the municipalities' tax rate increases.

• The petitioners argued the decisions were unreasonable for relying on a "fictitious" spent tax rate, discriminating against Richmond and Surrey, and improperly critiquing municipal taxation decisions.

• Applying the Vavilov reasonableness framework, the Court found BC Hydro possessed broad statutory discretion under the Hydro and Power Authority Act and Order in Council 266/2016, with no mandated minimum for GILT payments.

• Justice Sigurdson concluded the decisions were reasonably justified, transparent and intelligible, dismissing both petitions while ordering each party to bear its own costs.

Background and parties to the dispute

The City of Richmond and the City of Surrey, two of the largest municipalities in British Columbia, brought separate petitions for judicial review before the Supreme Court of British Columbia against the British Columbia Hydro and Power Authority (BC Hydro). Richmond is the fourth largest municipality in the province by population size, with a population of approximately 210,000. Surrey is the second largest with a 2021 population of approximately 570,000. BC Hydro is a regulated public utility and statutory corporation continued under the Hydro and Power Authority Act, R.S.B.C. 1996, c. 212. BC Hydro is an agent of the government, and its sole shareholder is the Province of British Columbia. BC Hydro generates and delivers electricity to 95% of the population of the province and is regulated by the BC Utilities Commission (BCUC). The case was heard by the Honourable Justice E. Sigurdson in Vancouver over three days, July 8–10, 2025, with judgment delivered on February 26, 2026.

The GILT regime and legislative framework

As a public entity, BC Hydro is exempt from most forms of taxation, including municipal property taxes. However, it owns property within municipalities and benefits from the infrastructure and services of those municipalities. In place of property taxes, BC Hydro pays grants in lieu of taxes (GILT) to municipalities across British Columbia pursuant to section 34 of the Hydro and Power Authority Act (HPAA) and Order in Council 266/2016 (the 2016 OIC). The statutory language is permissive — section 34(1) provides that BC Hydro "may" make annual grants with the approval of the Lieutenant Governor in Council. The 2016 OIC sets a maximum GILT amount composed of two components: 1% of BC Hydro's gross revenue from sales of electricity within the municipality during the 12-month period ending March 31 of the year preceding the taxation year (the "1% of revenues" component), and a "Land and Buildings" component equal to the municipal taxes that would have been payable had BC Hydro been liable, calculated using the municipality's previous year's tax rate. The 2016 OIC does not otherwise prescribe the GILT amount. Unlike its 1965 predecessor, it contains no minimum payment requirement, and within the statutory scheme, payment of GILT each year is not mandatory.

BC Hydro's longstanding practice and the municipalities' tax rate increases

Prior to 2022, BC Hydro had invariably paid every municipality the maximum permitted GILT each year. This practice was not prescribed in the regulation or in any other policy instrument, but it was the approach, invariably, every year until 2022. In 2020, 114 municipalities received GILT payments from BC Hydro. Between 2010 and 2020, total payments increased from $52.0 million to $95.8 million. In 2020, Surrey increased its Utilities Class tax rate from $28.27 to $39.80 — a 41% increase. In 2021, Richmond increased its Utilities Class tax rate from $28.4 to $39.95 — also a 41% increase. BC Hydro submitted that none of the other 15 municipalities with the largest Land and Buildings components for the maximum grant increased their Utilities Class tax rate by more than 10% in 2020 (for Surrey's comparison year) or more than 7% in 2021 (for Richmond's comparison year), except for Port Moody, which increased by 14%. During a meeting in July 2021, Surrey representatives told BC Hydro they had increased their Utilities Class tax rate so as to limit the increases to the residential and business classes. Richmond explained its increase was due to a decrease in the net assessment value for taxable properties by 25.72%, though BC Hydro responded by noting the net value of BC Hydro's Utilities Class properties had actually increased by 10.5%.

BC Hydro's review and the disputed decisions

In 2021, BC Hydro initiated an internal review of its grant payments, with a focus on the 15 municipalities who receive the largest payments. In November 2021, BC Hydro wrote to Surrey advising that while it would pay the maximum authorized amount for 2021, it was reviewing its options to exercise its discretion to pay less than the maximum in 2022 to municipalities with significant increases. BC Hydro also advised Richmond in November 2021 that it was considering exercising its discretion to remit a reduced GILT payment. For 2022, 2023, and 2024, BC Hydro exercised its discretion to pay Richmond and Surrey reduced GILT amounts. The Land and Buildings portion of the reduced grant was calculated based on Richmond's 2020 and Surrey's 2019 Utilities Class tax rates — the rates in effect before their respective 41% increases. In 2022, BC Hydro paid Surrey a total grant of $16.26 million and Richmond a total grant of $3.9 million. In 2023, BC Hydro paid Surrey a total grant of $20 million and Richmond a total grant of $4.56 million. In 2024, BC Hydro paid Surrey a total grant of $26.5 million and Richmond a total grant of $5.1 million. Surrey estimates the reduced approach resulted in a $14,989,425.34 cumulative shortfall across 2022–2024, while Richmond estimates a $2,552,249.71 shortfall over the same period.

The municipalities' arguments for unreasonableness

Richmond and Surrey advanced several arguments that BC Hydro's decisions were unreasonable. They contended that BC Hydro departed from a previously consistent funding practice. They argued that the GILT payments did not follow the tax system in fact in place at the time, relying on the Supreme Court of Canada's decision in Montréal (City) v. Montréal Port Authority, 2010 SCC 14, where federal Crown corporations' use of an old tax regime to calculate payments in lieu of taxes was found arbitrary and unreasonable. Richmond submitted that by basing payment decisions on a spent tax bylaw, BC Hydro tied GILT payments to a "fictitious system they themselves have created arbitrarily." They argued the decisions treated Surrey and Richmond differently from all other municipalities. Richmond highlighted that in 2021, 46 municipalities had a higher Utilities Class tax rate than Richmond, in 2022 that number rose to 56, and in 2023 to 62 municipalities. Surrey challenged BC Hydro's rationale about fairness to ratepayers, arguing that BC Hydro's reasons lacked analysis of whether the benefits other customers in BC receive from Surrey's hosting of BC Hydro infrastructure were proportionate to the cost. Surrey also argued that BC Hydro improperly critiqued Surrey's municipal taxation decisions, noting BC Hydro had stated "there does not appear to be a reasonable rationale for your tax rate increase on Utilities-class property owners."

The Court's analysis and ruling

Applying the Vavilov reasonableness framework, Justice Sigurdson identified two fundamental factual and legal constraints: the broad scope of BC Hydro's discretion in the governing statutory framework, and the role of BC Hydro's invariable past practice. On discretion, the Court concluded that the discretion available to BC Hydro under the HPAA is very broad, noting that other than a maximum, the applicable scheme provides no parameters for GILT payments. The Court found Montréal distinguishable, as the federal PILT scheme included a mandatory minimum payment anchored to a current effective tax rate, whereas the BC scheme contains no minimum and no formula for amounts below the maximum. On past practice, the Court held that BC Hydro's marked departure from its previously invariable practice required justification for its change in approach, but that departure from invariable practice, on its own, does not render the decisions unreasonable. The Court found BC Hydro did communicate a rationale through its correspondence, citing four reasons: the precipitous 41% tax rate increases disconnected from the provision of services to BC Hydro; the concern that increases in grant payments flow through to electricity charges paid by customers across the province, raising questions of fairness and equity; that BC Hydro's fiscal planning had included only moderate increases; and that GILT payments had been increasing significantly in an accelerating manner. The Court addressed each of the petitioners' arguments and found none established unreasonableness. The petitions were dismissed, and BC Hydro prevailed as the successful party. No specific monetary amount was awarded. The Court exercised its discretion to order each party to bear its own costs, recognizing that the petitions raised principled, valid and well-argued concerns and were brought in good faith and in the public interest.