Decision Date: March 2, 2010

Panel: James S. Hackett

Keywords:  Forest Act – ss. 105(1), 148(4), 148.6; Interior Appraisal Manual – s. 2(b) of Appendix VI; adjusted stumpage rate; green sawlog fraction; log scale data; mountain pine beetle

Stones Bay Holdings Ltd. (“Stones Bay”) appealed an adjusted stumpage rate that was determined by the Timber Pricing Coordinator (the “Coordinator”), Northern Interior Forest Region, Ministry of Forests and Range (the “Ministry”).  The adjusted stumpage rate applied to sawlogs harvested under Stones Bay’s timber sale licence (“TSL”) A77792, and scaled between December 15, 2005 and April 30, 2007.

When logs are scaled, they are classified by grade based on their size and quality for the purposes of manufacturing.  On April 1 2006, the Ministry changed the log grading rules for the BC Interior due to the increasing harvest of lodgepole pine timber killed by the mountain pine beetle, and the fact that, although this timber was dead and dry, it could still be manufactured into useful forest products.  The rule changes affected the calculation of stumpage rates.  For TSLs, section 2 of Appendix VI of the Interior Appraisal Manual (“IAM”) permitted adjustments to the upset stumpage rate when certain conditions were met.  TSL A77792 qualified for an adjustment under section 2(b) of Appendix VI of the IAM.

The adjusted stumpage rate was determined according to an algorithm defined in section 2(b) of that Appendix.  Appendix VI stated that a key piece of information used in the algorithm, the green sawlog fraction “GLF”, had to be determined by the Timber Sales Manager (the “Manager”).  The purpose of the GLF was to calculate an adjusted stumpage in an effort to keep those licensees “whole” relative to their expected financial return before the changes to the log grading rules.

At issue in this appeal was the information used by the Manager to calculate the GLF, which was used in the Coordinator’s determination of the adjusted stumpage rate for TSL A77792.  A higher GLF results from using a higher percentage of green sawlogs (and correspondingly, a lower percentage of dead and dry trees) in the algorithm in section 2(b) of Appendix VI.  A higher GLF leads to a higher adjusted stumpage rate.

Stones Bay submitted that the Manager should have considered the level of beetle infestation on the TSL A77792 cutting authority area to estimate the volume of dead and dry timber for the purpose of calculating the GLF.  Stones Bay also submitted that the Manager should have considered information from TSL A77796, located near TSL A77792, before calculating the GLF for TSL A77792. Alternatively, Stones Bay argued that the Commission should order the Ministry to use the forest district average GLF as the GLF for TSL A77792.

First, the Commission considered whether it was restricted to considering the “best information available” as determined by the Manager when he calculated the GLF.  The Commission held that sections 148(4) and 148.6 of the Forest Act give the Commission broad powers to hear evidence, including evidence not previously provided to decision-makers below.  Accordingly, the Commission has jurisdiction consider new information that was relevant to the appeal.  However, the Commission also found that the most relevant evidence in this case was the information that was relevant to the GLF determination and was available on or about the date of the change in the log grades; i.e. April 1, 2006.  Information relating to the GLF that came to light after that date could still be considered by the Commission, but it may be accorded less weight.

Turning to Stones Bay’s main arguments, the Commission noted that the IAM was silent on how the Manager was to decide what constituted the “best available information” for the purpose of calculating the GLF.  The Commission reviewed the process that the Manager used to select information, and held that the process was a reasonable one.  Specifically, for TSL A77792, the Manager considered species composition and stand data from representative TSLs located near TSL A77792, because less than 25% of the timber on TSL A77792 had been scaled by April 1, 2006.  The Commission found that the Manager’s process was logical and equitable, and was consistent with Ministry policies.

Regarding Stones Bay’s argument that data from TSL A77796 should have been considered, the Commission held that TSL A77796’s stand characteristics alone did not distinguish it from the two TSLs that were used by the Manager to calculate the GLF.  The Commission also found that not all of the harvesting under TSL A77796 had been declared completed before April 1, 2006, and therefore, the Manager could not reasonably have used the scale data from TSL A77796 to determine the GLF for TSL A77792.  The accuracy of the scale data for TSL A77796 was also found to be questionable.

Regarding the issue of whether the Manager should have considered the extent of the beetle infestation on TSL A77792 before he calculated the GLF, the Commission found that beetle attack levels were a poor predictor of the volume of dead and dry timber on a TSL.  In that regard, the Commission accepted the Respondent’s statistical evidence, which showed a weak correlation between the level of beetle attack and the volume of dead and dry timber.

In summary, the Commission concluded that the Manager acted reasonably in calculating the GLF for TSL A77792 based on data from two TSLs which were located close to TSL A77792 and exhibited similar stand characteristics to TSL A77792.  The Commission concluded that there was no basis to also use scale data from TSL A77796 or the district average GLF.

Accordingly, the appeal was dismissed.