2018 Top Ten: Regulatory Decisions Of Import To The Canadian Energy Industry

At the beginning of 2018, our review of the 2017 Canadian regulatory events described them as dramatic, but the 2018 saga turned out to be nothing short of a blockbuster. Pressure built up to a bubble point at the federal and provincial levels of governments, and at the National Energy Board ("NEB"), regarding interjurisdictional pipelines that provide market access for western Canadian oil and gas production. By the end of the year, the situation was a mixture of partial success, major setback and promise of hope. While the Government of Canada purchased the Trans Mountain Expansion Project to alleviate the political risks associated with its construction, the Project encountered yet another hurdle when its federal approval was sent back to the NEB for reconsideration. Further, questions about federal/provincial jurisdiction over a pipeline wholly within a province were raised and have significant implications for similar facilities.

So acute were the pipeline capacity issues that the Government of Alberta had to cut oil production to decongest the bottleneck and improve the discounted price of Alberta's crude oil that could not access external markets. Prior to the oil cut, however, the Alberta Energy Regulator ("AER") approved a new oil sands in situ project with a signal that a cap on cumulative impacts of oil sands development must be determined at the policy level. The Alberta Utility Commission ("AUC"), on the other hand, approved electricity generation and transmission facilities consistent with Alberta's plan of 30 percent renewable electricity by 2030.

In British Columbia, hydraulic fracturing was given a thumbs-up by the British Columbia Oil and Gas Appeal Tribunal. Finally, in Ontario, the Ontario Energy Board ("OEB") approved an amalgamation of the two largest gas distribution companies, largely on the basis that the deal would not cause harm to Ontario ratepayers.

1. Trans Mountain Expansion purchased by Canada, the Project Approval quashed and NEB reconsidering aspects of the Project's 2016 Recommendation Report

   The Trans Mountain Expansion Project (the "Project") witnessed a significant promise and a major setback in 2018. In the spring, the Project was confronted with uncertainty amidst seemingly insurmountable political and legal hurdles. By the fall, while the political risk seemed to have decreased, the Project went back to the NEB for reconsideration of related marine shipping.

   Project Milestones in 2018

   In early 2018, the Project was making progress on its detailed route hearings, including the NEB's approval of detailed route Segments 1 & 2 (Edmonton to Jasper National Park)1 and portions of Segment 7 (BC lower mainland, including the Burnaby Mountain tunnel).2

   As the detailed route hearings continued into the spring, Kinder Morgan sought greater certainty from the Government of Canada about the viability of the Project in the face of mounting political, legal3 and financial risks. Kinder Morgan imposed a deadline of May 31, 2018 for the Government of Canada to provide a solution. Shortly thereafter, on May 29, 2018, the Government of Canada announced its decision to purchase the Project for $4.5 billion, after other proposed solutions were rejected.4 The purchase transaction closed on August 31, 2018.

   Meanwhile, on August 30, 2018, the Federal Court of Appeal released its decision in Tsleil-Waututh Nation v. Canada (Attorney General).5 The decision quashed the Order in Council that approved the Project and nullified the NEB's Certificate of Public Convenience and Necessity ("CPCN") on the basis that the Government of Canada had engaged in a flawed consultation process with affected Indigenous communities, and that the NEB unreasonably failed to consider Project-related marine shipping impacts from its environmental assessment of the Project. Consequently, construction activities relating to the Project were halted.

   On September 21, 2018, the Government of Canada issued a new Order in Council6 referring the Project back to the NEB for reconsideration of the impact of the Project-related marine shipping, while reinitiating its own consultation process with affected Indigenous communities.

   The NEB reconsideration process remains ongoing. On January 10, 2019, the NEB released its draft conditions and recommendations relating to the reconsideration hearing. The NEB is expected to deliver its final report on the reconsideration no later than February 22, 2019.

2. The National Energy Board approves the North Montney Mainline Pipeline Project in Northeastern BC to proceed without the Pacific NorthWest Liquefied Natural Gas Facility

   On May 23, 2018, the NEB released its decision granting Nova Gas Transmission Ltd.'s ("NGTL") application to vary the North Montney Mainline Project (the "Project") as previously approved in 2015. The NEB allowed the Project to proceed notwithstanding the cancellation of a proposed liquefied natural gas facility which underpinned the initial approval.

   The 2015 approval was conditional upon a firm investment decision being made on the Pacific NorthWest Liquefied Natural Gas ("PNW LNG") facility by Petronas. The Project was intended to include a westbound segment to connect to the PNW LNG facility, and the majority of the gas shipped on the Project was expected to flow to that facility. The firm investment decision did not occur and the "sunset clause" deadline for NGTL to start construction of the Project approached. NGTL sought to vary the conditions of the Project in order to allow it to connect solely to the existing NGTL pipeline network in Alberta, with no service...