Top Ten Energy Industry Regulatory Decisions And Developments In 2019

This year witnessed some dramatic events in the energy regulatory world. Since our review of the major 2018 regulatory developments, significant progress has been made on the Trans Mountain Expansion Project (the Project). Not only has the National Energy Board (NEB) and federal cabinet reapproved the project, but the Supreme Court of Canada has dismissed British Columbia's attempt to regulate interprovincial heavy oil transportation. These developments have paved the way for construction and clarified important principles underpinning federal-provincial regulatory jurisdiction.

There were also major developments in Alberta's electricity market, with the new government's commitment to return to an energy only electricity market and the Alberta Court of Appeal denial of several appeals from the Alberta Utilities Commission (UAC) relating to electricity line loss. The AUC also confirmed the post Stores Block and utility asset disposition (UAD) principles related to stranded assets, but also prompted a discussion about the framework's "possible deleterious effects" while calling for "debate on the evolution of public utility regulation in Alberta."

In response to the growing public focus on reclamation and clean up of oil and gas sites, the British Columbia government recently enacted the Dormancy and Shutdown Regulation, which creates mandatory timelines for decommissioning dormant well sites.

On the international stage, Canada and the United States inched closer to ratifying the Canada-United States-Mexico Agreement, which will usher in important changes to NAFTA's Chapter 11 dispute resolution mechanism. These changes will have important implications for how certain North American energy disputes are resolved.

In this article, we review these and other regulatory developments important to the Canadian energy industry from the previous year.

1. NEB reapproves TMX project and SCC dismisses BC's bid to regulate interprovincial heavy oil transportation The Project witnessed several significant and promising advances in 2019. In 2018 the Project was fraught with seemingly insurmountable political, legal, and financial risk, including the Federal Court of Appeal's decision in Tsleil-Waututh Nation v. Canada (Attorney General),1 British Columbia's attempt to regulate interprovincial heavy oil transportation, and the federal government's eventual purchase of the Project.2

   The Project now has a far brighter outlook and has reached a number of key milestones. On February 22, 2019, the NEB released its reconsideration report, recommending that the Project proceed with 16 new recommendations aimed at mitigating the environmental impacts of marine shipping. Shortly thereafter, cabinet accepted the NEB's recommendation and approved the Project.3

   Additionally, in May 2019, the British Columbia Court of Appeal issued its reference opinion concerning BC's proposed amendments to its Environmental Management Act.4 A unanimous five-member panel of the Court of Appeal held that the proposed amendments were outside of provincial jurisdiction as they primarily focused on a federal interprovincial undertaking.5 On January 16, 2020, the Supreme Court of Canada unanimously dismissed BC's appeal of the reference, reaffirming the BCCA's decision. This unanimous decision provided much-needed legal clarity on federal-provincial energy jurisdiction and removed a major potential hurdle for the completion of the Project.

   Since construction of the Project officially began on December 3, 2019,6 the Project's approval is still subject to several Federal Court appeals based on whether the Crown failed to discharge its duty to consult in the re-approval of the Project.7 A decision on these appeals has not yet been rendered.

   While litigation and financial risk are still present, the Project is now in a much more stable and promising position.

2. NEB releases jurisdiction decision on coastal GasLink pipeline project

   On July 26, 2019, the NEB released its decision concerning the Coastal GasLink Pipeline Project (CGL Pipeline). It ruled that the CGL Pipeline, including the LNG Export Terminal under development in Kitimat, is properly under provincial jurisdiction.

   The proceeding before the NEB did not address whether the CGL Pipeline should be approved, whether it is in the public interest, or what the environmental, economic, and indigenous impacts are. Instead, the board was solely focused on assessing whether the CGL Pipeline is a local undertaking, which the province of BC should have jurisdiction over, or whether it is part of, or integral to, larger interprovincial work under exclusive federal jurisdiction.

   The decision comes on the heels of several high profile, energy related division of power disputes between the provinces and the federal government and reaffirms traditional division of powers principles between the federal and provincial governments. Although a project may have interprovincial implications, such as CGL's ability to export LNG to international markets, those implications alone will not create federal jurisdiction over the entire project.8

3. Canadian energy regulator halts enbridge mainline open season

   In an unprecedented decision released on September 27, 2019, the Commission of the Canada Energy Regulator (Commission) concluded that the commercial open season bidding process (Open Season) initiated by Enbridge Pipelines Inc. (Enbridge) for contracted transportation capacity on its Mainline pipeline system could not move forward without prior approval from the Commission of the tolls, terms, and conditions of service being offered by Enbridge.

   Enbridge's Open Season had formally commenced on August 2, 2019, with bidding to remain open until October 2, 2019. Enbridge proposed to offer up to 90 per cent of the existing oil and liquids capacity on the Mainline, which has historically operated as a common carrier pipeline without any capacity reserved for contracted service.

   The proposed shift from common carriage to firm contracted service raised concerns among numerous shippers on the Mainline. Suncor Energy Inc., Shell Canada Limited, Canadian Natural Resources Limited, and the Exploration and Producers Association of Canada, on behalf of its members, filed formal complaints and letters between August 23 and 26, 2019.

   The submissions focused on the dependence of western Canadian oil producers upon access to transportation capacity on the Mainline, in light of the Mainline's unique position as the primary mode of transportation (representing about 70 per cent of total capacity) to refining and export markets from western Canada. Certain shippers argued that there was an imbalance of market power between Enbridge and its shippers. They would have no choice but to accept the terms of contract service offered by Enbridge in order for the shippers to ensure that they would have enough transportation capacity to continue moving their product to market and the ability to fulfill their existing downstream obligations. Otherwise, the submissions argued that shippers who did not accept Enbridge's offer and elected not to participate in the Open Season risked losing access to the Mainline entirely, as they would need to rely on the 10 per cent of capacity reserved for common carriage, in circumstances of existing over-demand and significant apportionment of capacity allocation between shippers. To prevent this exercise of market power, it was argued that there must be regulatory oversight and approval of the tolls, terms, and conditions of any contract service on the Mainline before it is offered to shippers.

   The Commission ultimately agreed with the submissions that the Open Season represented an exercise of market power. The Commission acknowledged that the former NEB had never before intervened in a commercial open season process, and ordinarily only evaluated the tolls, terms, and conditions of service after an open season had concluded after the pipeline had made its formal application for approval of the new service. However, the Commission found that a constellation of factors unique to the Mainline warranted intervention in this case.

4. Alberta returns to energy only electricity market

   On July 26, 2019, Alberta's newly formed government announced its intention to return to an energy-only electricity market. The announcement marks the end of the previous government's multi-year transition of the electricity-generation sector to a capacity market model. The reversal comes as part of a broader public policy shift away from the previous government's focus on its Climate Action Plan, which included a phase-out of coal and subsidies for...