Constitutional Issues.............................................................................................................. 5Jurisdiction to limit and price production of natural resources.......................................5

Central Canada Potash v SK – 1979.................................................................................................................5CAL-OIL........................................................................................................................................................................ 5

Immunity from taxation of provincial property......................................................................6Reference re Proposed Federal Tax on exported Natural Gas (NEP Reference) – 1982..........6

Works and undertakings.................................................................................................................6Westcoast Energy v Canada (NEB) – 1998...................................................................................................6Central Canada Western Railway Corp – 1990...........................................................................................7Fulton v Alberta (Energy Resources Conservation Board) – 1981....................................................8

Interjurisdictional Immunity and Territorial Jurisdiction..............................................................8BC v Lafarge Canada – 2007................................................................................................................................8Quebec v Canadian Owners and Pilots Association – 2010...................................................................9

Uranium Mining and Nuclear Power...........................................................................................9Ontario Hydro v Ontario (Labour Relations Board) – 1993...............................................................10Nuclear Safety and Control Act.......................................................................................................................10

Jurisdiction over Environment...................................................................................................10Friends of the Oldman River Society v Canada (Minister of Transport) – 1992.......................10

Jurisdiction over International Trade and Energy Exports..............................................11Constitution Act ss. 91(2)..................................................................................................................................11

Oil and Gas Title.................................................................................................................... 12Oil and Gas Title and Crown Disposition.................................................................................12

Borys...........................................................................................................................................................................12Anderson v Amoco Canada Oil and Gas (AB QB 1998).........................................................................12Anderson v Amoco Canada Oil and Gas (SCC 2004)..............................................................................13Discussion Paper: Tenure Provisions of the Petroleum and NG Act and Regulations............13

Oil and Gas Freehold Lease (freehold).....................................................................................13Standard Lease Clauses:..............................................................................................................................13The Nature of the Lease...............................................................................................................................14

Berkheiser v Berkheiser (1957 SCC)............................................................................................................14Omers Energy v AB (Energy Resources Convservation Board) (2011 ABCA)...........................15

The habendum clause...................................................................................................................................15Durish v White Resource Management (1987 ABCA)...........................................................................15Canada-Cities Service Petroleum v Kininmouth (1964 SCC).............................................................15

The suspended well clause (and effect of the default clause)....................................................16Omers......................................................................................................................................................................... 16

The shut-in well clause (and the effect of the default clause)....................................................16Absence of production:............................................................................................................................................16

Durish v White Resource Mgmt......................................................................................................................16Absence of market:....................................................................................................................................................17

Freyberg v Fletcher Challenge Oil and Gas.................................................................................................17

Upstream Regulation in BC................................................................................................ 191. Regulation of Wells and Facilities.........................................................................................19

OGC....................................................................................................................................................................................19a. The role of the public in oil and gas development......................................................................19

Consultation and Notification Manual.........................................................................................................19Consultation and Notification Regulation..................................................................................................19

b. Surface Rights.............................................................................................................................................19Petroleum and Natural Gas Act ss. 138, 142.............................................................................................20Land Act s.11...........................................................................................................................................................20

i. Surface Rights Board.............................................................................................................................................21

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Petroleum and Natural Gas Act.......................................................................................................................21Surface Rights Board Information Sheet #1 – see document............................................................21Velander v Imperial Oil.......................................................................................................................................21

ii. Agricultural Land...................................................................................................................................................22Agricultural Land Commission Act ss. 25 and 26....................................................................................22Guidance Document for Oil and Gas Applications within the ALR – see file and document 23

c. Wells and Facilities....................................................................................................................................23Well Authorization.....................................................................................................................................................23

Oil and Gas Activities Act, ss. 1, 21, 24, 25, 26..........................................................................................23Well Permit Application Manual – see document...................................................................................24

Spacing and Target Areas........................................................................................................................................24Petroleum and Natural Gas Act ss. 65-67...................................................................................................25Drilling and Production Regulation ss. 5-7................................................................................................25

Storage Reservoirs.....................................................................................................................................................26Oil and Gas Activities Act...................................................................................................................................26Petroleum and Natural Gas Act ss. 126 – 130...........................................................................................26

Regulation of Production............................................................................................................................26Pooling and Unitization............................................................................................................................................26

Petroleum and Natural Gas Act ss. 68, 69, 114, 115..............................................................................27Petroleum and Natural Gas General Regulation s.5...............................................................................28

Production Allowables.............................................................................................................................................28Drilling and Production Regulation ss. 61, 65, 66...................................................................................28Well Spacing and Target Area Regulations – see powerpoint...........................................................28

Rateable Take and Common Processor/Carrier...........................................................................................28Petroleum and Natural Gas Act s. 133.1......................................................................................................29Celtic Exploration Ltd..........................................................................................................................................29

Enhanced Recovery Schemes................................................................................................................................29OGAA s. 75................................................................................................................................................................29Innovative Technology (experimental) Scheme Application Guideline........................................30

Unconventional resources – need for new regulatory approaches?....................................................30A New approach to regulating unconventional resource plays in AB............................................30

Upstream Regulation in Alberta......................................................................................321. Alberta Energy Regulator.........................................................................................................32

Regulatory Reform: at what cost efficiency...............................................................................................322. Role of the Public Interest in Upstream Oil and Gas Regulation.................................32

a. Energy Resource Conservation...........................................................................................................32Giant Grosmont Petroleum Ltd v Gulf Canada Resources...................................................................32

b. Environmental Resource Conservation...........................................................................................32Application for an Exploratory Well – Whaleback Ridge Area..........................................................32Re Polaris Resources............................................................................................................................................32

c. Standing.........................................................................................................................................................33Responsible Energy Development Act ss. 32-34.....................................................................................33Dene Tha’ First Nation v Alberta (Energy and Utilities Board).........................................................33

3. The Role of Equity in Regulation...........................................................................................33a. Spacing and off-target penalties..........................................................................................................33

Beau Canada Exploration v Alberta (Energy and Utilities Board)...................................................33b. First well in a pool.....................................................................................................................................34

Nycan Energy Corp v Alberta (Energy and Utilities Board)...............................................................34c. Common carrier and common processor orders.........................................................................34

Re Rider Resources Inc.......................................................................................................................................34d. The Ethane Wars.......................................................................................................................................34

Re Solex Gas Processing Corp..........................................................................................................................34e. Regulation and the use of Alternative Dispute Resolution......................................................34

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Responsible Energy Development Act ss. 63 - 65...................................................................................34Barlett v Alberta (Energy and Utilities Board).........................................................................................34

4. Regulators Overriding Contracts...........................................................................................34Re TransCanada Pipeline Ventures...............................................................................................................34

5. Security for Abandonment and Reclamation....................................................................35Oil Sands Mining Reclamation in AB: a discussion of the prior regime and the new mine financial security program................................................................................................................................35

6. Securing Surface Rights............................................................................................................ 35Sproule v Atalink Management.......................................................................................................................35

Pipelines and LNG................................................................................................................. 361. Constitutional Issues................................................................................................................. 36

Westcoast Energy Inc v Canada (NEB) – 1998 SCC................................................................................36Westcoast Energy Inc. (Re) – LNCNEB 2001.............................................................................................36TransCanada Pipelines Ltd (Re) – 2009 LNCNEB...................................................................................36

2. Construction and Operation....................................................................................................36“Light Handed Regulation”................................................................................................................................36National Energy Board Act:...............................................................................................................................37OGAA...........................................................................................................................................................................37Utilities Commission Act....................................................................................................................................38Emera Brunswick Pipeline Co..........................................................................................................................38

3. Traffic, Tolls and Tariffs........................................................................................................... 39NEB: Traffic, Tolls, and Tariffs.........................................................................................................................39Financial Regulation of Pipeline Companies under the Board’s Jurisdiction (NEB)................39

Toll Design.....................................................................................................................................................................39TransCanada Pipelines Ltd (Re) – 2013......................................................................................................39

4. Other regulatory issues and developments.......................................................................41Incentive or light-handed regulation.................................................................................................................41

5. LNG Facilities................................................................................................................................ 41OGAA: definition of “facility”............................................................................................................................41Oil and Gas Activities Act General Regulation s.2....................................................................................41

LNG facilities located on federal land (reserves)?...........................................................................41

Sustainability......................................................................................................................... 421. Environmental Considerations: Project-Specific.............................................................42

Environmental Assessment Act ss. 10, 11..................................................................................................42Reviewable Projects Regulation Part 4: Energy Projects....................................................................42Federal Reduction of CO2 Emissions from Coal-Fired generation of electricity regulations43OGAA s. 4, s. 25(1)(b)..........................................................................................................................................43Environmental Protection and Mgmt Regulation...................................................................................43BC Hydro and Power Authority v BC Utilities Commission................................................................43Kinder Morgan Pipeline List of Issues..........................................................................................................44

2. Cumulative Effects and Class Assessments........................................................................44BCEAA ss. 11, 20....................................................................................................................................................44

Class assessments under the EAA.......................................................................................................................44Cumulative Effects......................................................................................................................................................45

Bow Valley Naturalists Society v Canada (Minster of Cdn Heritage).............................................45Dene Tha’ First Nation v BC (Minister of Energy and Mines)............................................................45

3. Economic Levers......................................................................................................................... 45a. Carbon Tax....................................................................................................................................................46

Carbon Tax Act.......................................................................................................................................................46How the carbon tax works................................................................................................................................46

b. Cap and trade.............................................................................................................................................. 46Consultation Backgrounder: carbon pricing.............................................................................................46

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4. Mechanisms for promotion of alternative energy...........................................................46a. Feed-in tariffs..............................................................................................................................................46

Clean Energy Act....................................................................................................................................................47Utilities Commission Act....................................................................................................................................47Electricity Act..........................................................................................................................................................47

b. Renewable Portfolio Standard.............................................................................................................48Renewable electricity regulations.................................................................................................................48

Regulatory Compact............................................................................................................. 49Elements of the Regulatory Compact....................................................................................................49

1. Obligation to Serve................................................................................................................................................492. Without Discrimination......................................................................................................................................493. Reasonable Price....................................................................................................................................................50

Court decisions................................................................................................................................................50Memorial Gardens Association v Colwood Cemetery Company.......................................................50Chastain v BC Hydro and Power Authority................................................................................................50OEB v Ontario Power Generation...................................................................................................................51Hemlock Valley Electrical Services v BC (Utilities Commission)......................................................51

Public Utilities and the Common Good..........................................................................521. Setting Rates for Low-Income Customers...........................................................................52

Dalhousie Legal Aid Service v Nova Scotia Power..................................................................................52Advocacy Centre for Tenants-Ontario v Ontario (Energy Board)....................................................52Demand-Side Measures Regulation, definition of low income customer, ss. 3, 4(1.1)(c).....53

2. Integrated Resource Planning: incorporating externalities........................................53Can public utility regulation take into account environmental impacts?..............................53

Massachusetts Electric Company v Department of Public Utilities.................................................53BC Hydro and Power Authority v BC Utilities Commission................................................................54Utilities Commission Act....................................................................................................................................54Clean Energy Act....................................................................................................................................................54

3. Demand-Side Measures: energy conservation..................................................................54Utilities Commission Act....................................................................................................................................54Clean Energy Act....................................................................................................................................................54Demand-Side Measures Regulation..............................................................................................................54California Standard Practice Manual: Economic Analysis of Demand-Side Programs...........55

4. Using Rates to Promote Conservation.................................................................................55BCUC: BC Hydro and Power Authority Residential Inclining Block Rate Application............55Shore Power Regulation.....................................................................................................................................55

Aboriginal Involvement in Energy Projects.................................................................561. Consultation.................................................................................................................................. 56

Haida Nation v BC (Ministry of Forests).....................................................................................................56Mikisew Cree First Nation v Canada (Minister of Cdn Heritage).....................................................57Salteau v Vintage...................................................................................................................................................58Dene Tha’ First Nation v Minister of Environment................................................................................59

2. Other materials to consider....................................................................................................59Qikiqtani Inuit Association v Canada (Minister of Natural Resources).........................................59Agreement between the Inuit of the Nunavut Settlement Area and Her Majesty.....................59Aboriginal consultation guide for preparing a renewable energy approval...............................59

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Constitutional IssuesTaxation: provinces limited to “direct tax.” At time of Constitution, thought this wouldn’t earn much money, so provincial revenues would come from the resources awardAs such, provincial always keen to control their own resources, push back against federal interference

Jurisdiction to limit and price production of natural resourcesCentral Canada Potash v SK – 1979

Held The true nature of the scheme was the regulation of the marketing of potash through the fixing of a minimum selling price applicable to the permitted production quotas. As very little potash was sold within Saskatchewan, out of province and offshore sales were the principal objects of the scheme. As provincial legislative authority did not extend to the control or regulation of the marketing of provincial products in interprovincial trade or export trade, the scheme was ultra vires.

Facts Potash surplus, price drop Under Mineral Resources Act, SK attempts to reduce overproduction by

requiring licences (and allocating how much each can produce) Central Cd Potash not happy with new scheme

SK no attempt to “invade the field” of trade and commerce intent is not to interfere with federal jurisdiction, but rather about

regulating natural resources

SCC Production controlling is generally within provincial, BUT might not apply where price-fixing is main point and is aimed at export Directly aimed at production of product destined for export Note: could have very likely been different if it was (for example) ON

with copper where a larger % is used within the province

Tension – does this rationale hold water?

CAL-OIL upholds federal regulation on transport of oil, clearly caught many transaction that would be entirely within the province

Comparison to Central Canada Potash?

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Immunity from taxation of provincial propertyReference re Proposed Federal Tax on exported Natural Gas (NEP Reference) – 1982

Facts Oil and NG prices rise About ½ the revenue accrues to provincial governments Feds want in on the mad dough Prior to export, NG belongs to Alberta Feds attempt imposition of tax on property owned by AB crown S. 125: province immune to taxation by federal Crown

Issue Can Canada impose a tax on exported natural gas that up until export belongs to Alberta?

s. 125 was plainly intended to prevent inroads by taxation on one level of government by another Province guards ability to raise revenue by and control natural resources Feds only have general taxation power

Pith and substance of provision was taxing the provincial crown. Was not an export tax (that was incidental) Was not regulatory (in no way restrained/controlled economic behaviour)

Q How does this square with Central Cd Potash?

Works and undertakingsWestcoast Energy v Canada (NEB) – 1998

Rule A work/undertaking is a single entity & therefore entirely under federal jurisdiction if there is common control and functional integration

Comment

You can “game the system” to be regulated provincial or federally, depending which is more advantageous (approach seems to be a tally) – if it’s advantageous to be provincially regulated, just set up a subsidiary.

Facts Pipeline (now the Spectrum pipeline) clearly federally regulated, crosses border into US

Seek to have processing facilities also federally regulated

Issue Are things connected to/related to the pipeline also federally regulation? Can come under federal jurisdiction in 2 ways:

1. A single federal work or undertaking (here)2. Provincial works integral to the core federal

transportation/communication facility

Test for single undertaking: whether operations are functionally integrated and subject to common control.

s.92(A) Added in 1982, management of natural resources But court says not meant to derogate from federal powers

Dissent Notes purpose of 92(a) is to enable feds to maintain transport and community between provinces and US – trying to get at its underlying

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purpose: feds have power where prov’ can’t individually do things or has to do with moving people/goods across country

Processing facilities are not of same ilk – pipeline, yes, obviously Ultimate test: whether the ultimate purpose…

o Doesn’t seem much different, just more soo Concerned about effect on provincial jurisdiction

Q Is the distinction from Ontario Hydro case legit?Has the majority conflated the 2 tests?Distinction between this case and Empress Hotel?Overall, where we stand after these 3 cases.

Central Canada Western Railway Corp – 1990Rule If a federal undertaking’s operation is dependent on a provincial undertaking,

the provincial undertaking becomes federally regulatedFacts Alberta company buys railway bit from CN

Railway operates entirely within AB, but is joined to CN Rail line (separated by a 4 inch gap)

Labour dispute – is it fed or prov regulated?

Issue Is the federal undertaking dependent on the local one? Westcoast established are 2 ways to come under federal jurisdiction

This is clearly not a single undertaking Does it fit within the 2nd option? (dependent on?)

looks at a few federal undertakings to determine if dependent on:1. CN: not in any way dependent on services of Appellant, had actually

consistently wanted to abandon the line2. Federal grain elevators: not directly concerned with transport of grains,

could be transported by other means

Fulton v Alberta (Energy Resources Conservation Board) – 1981Facts

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Comment

Important case: it’s great to be able to connect across jurisdictions, but still very important to provinces to continue to regulate within the provinceJudgement mainly hinges on fact that there’s no federal regulation (“occupying the field)o But this seems to contradict Potash - SK argued that the feds couldn’t

regulated it either and someone should, said didn’t mattero “Occupying the field” no longer a very valid argument

Issue Federally or provincially regulated? Both sides can detach without the other, doesn’t all fall down

Federal AG agrees with the provinces – seems to influence , doesn’t want to disturb the agreement

Interjurisdictional Immunity and Territorial Jurisdiction Paramountcy: 2 laws, one federal and one provincial, come into conflict (must be actual conflict:

cannot do both or the provincial law defeats the object of the federal law), federal law trumps.

IJI: provincial legislation can have some effect on federal area of power, but not too much. Test is if “goes to core”. SCC has indicated don’t really like IJI as a concept, but continue to apply it If federally regulated, provincial laws of general application will still apply unless they go to

the core SCC has debated on many occasions, come up with various interpretations

BC v Lafarge Canada – 2007Rule If a federal undertaking’s operation is dependent on a provincial undertaking,

the provincial undertaking becomes federally regulatedFacts LaFarge wants to build ship offloading/concrete batching facility on

waterfront owned by Vancouver Port Authority (federal undertaking) People want the city to get involved and require a permit Potential application of city permit requirements LaFarge argues city’s bylaw doesn’t apply because:

1. Operating on federal public land2. Vital to LaFarge’s federal undertaking (port and shipping)

Issue Does the city have jurisdiction or is it exclusively federal?Held Fed’s have authority, city bylaw doesn’t apply: paramountcy. IJI shouldn’t apply where there’s a double aspect (both feds and province have

compelling interest) Some parts of the land are owned by feds, some not Can be supported by navigation and shipping powers – yes, the fed’s

can regulated BUT project only “supporting port services industries”, not vital to the

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port, so it’s not the core Characterizes as “incidental port development business” which

reaches federal jurisdiction, but not at the core

Paramountcy takes the day – federal law will trump where both fed and prov are applicable to different aspects of the proposed use and conflict

Interestingly, it’s not a federal law, just a port development plan Is there actually a conflict, or could both have co-existed?

Quebec v Canadian Owners and Pilots Association – 2010Issue Can provincial regulation of agricultural land interfere with federal

jurisdiction RE where to put airports?Held NOFacts QB tried to regulate where aerodrome could be situated (specifically, not in

the middle of designated agricultural land) Location of where we’re putting airports is clearly federal

(transportation), and is at the core of the competency IJI : precedent that protects where aircraft can land and take off, Act

trenched directly on core of federal aeronautics power (by limiting where airports can go), IJI is to protect immunized core of federal power from any provincial impairment

No federal paramountcy because possible to comply with both laws

Dissent Looks at specific facts of the case: is this a very important airport? Are all airports really the same? Trying to bring back to practical reality.

Uranium Mining and Nuclear Power Feds used declaratory power to bring under federal jurisdiction Also under peace, order, and good government clause

Ontario Hydro v Ontario (Labour Relations Board) – 1993Facts Declaratory provision: s.92(10)(c)

If Parliament declares local works “for the general advantage of Canada” it then falls within Parliament’s legislative jurisdiction as if it was listed in s.91

Held The Canada Labour Code applies to employees of Ontario Hydro who are employed on or in connection with those nuclear facilities that come under s. 18 of the Atomic Energy Control Act.

Labour relations are vital & integral to the work, don’t separate it out Province therefore cannot regulate re that work Do not read 92(10)(c) too narrow – expressly provides for transfers

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Nuclear Safety and Control Act

WHEREAS it is essential in the national and international interests to regulate the development, production and use of nuclear energy and the production, possession and use of nuclear substances, prescribed equipment and prescribed information;

AND WHEREAS it is essential in the national interest that consistent national and international standards be applied to the development, production and use of nuclear energy…

24. (1) The Commission may establish classes of licences authorizing the licensee to carry on any activity described in any of paragraphs 26(a) to (f) that is specified in the licence for the period that is specified in the licence…

26. Subject to the regulations, no person shall, except in accordance with a licence…

44. (1) The Commission may, with the approval of the Governor in Council, make regulations…

Works and undertakings

71. Any work or undertaking constructed for the development, production or use of nuclear energy or for the mining, production, refinement, conversion, enrichment, processing, reprocessing, possession or use of a nuclear substance or for the production, possession or use of prescribed equipment or prescribed information is declared to be a work or undertaking for the general advantage of Canada.

Jurisdiction over EnvironmentFriends of the Oldman River Society v Canada (Minister of Transport) – 1992

Rule Both federal and provincial governments have jurisdiction over environmentFacts Facts: AB gov’t proposes dam on Oldman River; req’s authorizations by fed

Ministry of Transport & Fisheries; fed EART Guidelines Order (G.O.) allows fed minister to screen proposals to determine if potential adverse env effects & if so, can conduct EA; prov EA done, but no fed EA; AB gov’t gets permit from Ministry of Transport

Held “Protection of the enviro. has become one of the major challenges of our time” Pith & substance of matter is w/in fed power (may have incidental

effects to prov but this is fine)

Repeats dissent in Zellerbach: env doesn’t have “distinctiveness” to meet POGG Nat’l Concern branch test

“Enviro. comprised of all that is around us & as such must be a part of what actuates many decisions of any moment”

“Both levels of govt may affect enviro. either by acting or not acting” Double aspect: one may leg. in regard to prov aspect, the other fed

(and G.O. only mandates feds to examine matters directly related to areas of their jurisdiction; it’s a planning tool & integral to sound decision-making, allows them to administer their duties & functions)

Double aspect: should respect / promote ability of both levels of gov’t

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to tackle env issuesDecision: guidelines order intra vires fed gov’t (both by sui generis constitutional power: simultaneously supported by all Fed heads of power implicated in specific project & “residuary power” of POGG – not one of traditional categories)

Jurisdiction over International Trade and Energy ExportsConstitution Act ss. 91(2)Regulation of Trade and Commerce – Canada

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Oil and Gas Title

Oil and Gas Title and Crown DispositionBorys

Background Crown owns at first instance (in right of province of BC)o Some sections of freehold (railway, old land transfers)

Generally, crown retains ownership and grants some sort of tenure Can have separation of surface and subsurface rights, can split

subsurface ownerships (i.e. retain rights to certain minerals)

Facts CPR sells ¼ section to plaintiff’s father The transfer reserves to CPR “coal, petroleum, and valuable stone” CPR leased petroleum rights to Imperial Oil 1947: find oil in LeDuc, Borys’ land part of formation Pool: oil pool and mixed pool Imperial starts drilling, before reaches pool, Borys applies for

injunction (pool not disturbed) Imperial argues that petroleum rights includes solution gas, Borys

argues that it is just the liquid petroleum (and therefore he owns g)

Issue What is petroleum? Does it include the gas phase?Assumption assumes in situ (ownership in place, subject to rule of capture)Holds Gas ≠ petroleum

Liquid hydrocarbons (including gas in solution) belong to the petroleum owner, gas phase belongs to the non-petroleum owner.

Why? Starts w/ K interpretation, but difficult to determine intentions from 40 years ago. Struggle to understand what 1906 mind would mean by “in situ petrol”o : clear that gas in situ is not subject to reservationo Less clear: what to do with gas in solution

Decides to make own construction:o Gas in situ owner by property ownero BUT Imperial not under an obligation to preserve the gas (odd)o All liquid form belongs to petroleum owner (including gas that’s

bound up in the liquid)

Anderson v Amoco Canada Oil and Gas (AB QB 1998) Concerned about making broad ownership theory

The only reasonable ownership is that it’s fee simply – assume they own exclusively to anyone else

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Anderson v Amoco Canada Oil and Gas (SCC 2004)

Issue Interpretation of Borys: does it apply at time of contract or time of recovery?

Held Time of contractAppellant Time is time of contract (wants the most in gas phase)

Canada is not ownership in situ jurisdiction – law of capture applies, means you only have ownership once you capture it

Respondent

Time in question is time of contract (pools hadn’t been interfered with)

Interpretation of contract is what decides. Law of capture not important once you’ve set out rights in a contract. Law of capture still has applications with side-by-side tenure But here we’re not talking about capture from separate tracts,

rather by phase – appropriate time to determine phase is at time of agreement

Discussion Paper: Tenure Provisions of the Petroleum and NG Act and Regulations Crown rights and tenure – auction process Tenure Options:

o Drilling licences No annual work requirements, but to convert drilling licence into lease, have to

drill a certain numbero Leases

Tenure grants property right, but doesn’t necessarily let you do anything Need permission to do things from Oil & Gas Commission (OGC)

Not the same as licence Still don’t own the gas until it comes out of the ground

Tenure grants exclusive rights to enter onto property, get the stuff, sell it (similar to profit a prendre)

Oil and Gas Freehold Lease (freehold) There is a standard: largely accepted by industry Still need to read the lease in question Not a lease to surface, but does include certain rights to use the surface

Standard Lease Clauses:a) A granting clause which conveys an interest in the leased substances for a primary

term;b) A “thereafter” or “habendum” clause which provides for continuation of the lease so

long as production or operations continue (subject to cause beyond lessee’s control);

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c) A delay rental clause which provides for periodic payments in order to continue the lease in the absence of the drilling of a well in the first lease year and any succeeding year during the primary term;d) A shut-in well clause which provides for a payment in the amount of the delay

rental in order to continue the lease if there is a failure or interruption of production during a lease year (typically as a result of lack of economic or profitable market); also expressed as a “suspended well clause”;

e) Royalty payments based upon production from the leased lands and compensatory royalty payments based upon production from an offsetting well located on a spacing unit laterally adjoining the leased lands; (not to be confused with Crown royalty)

f) A surrender clause which allows the lessee to terminate its obligations under the lease at any time;

g) Provisions dealing with the effect of pooling and unitizations; a. A pooling clause authorizes the lessee to pool the leased lands with

other lands to form a spacing unit.b. A unitization clause ordinarily authorizes the lessee to include the

leased lands (or any portion or leased substance thereof) in an agreement (a Unit Agreement, which is ordinarily accompanied by a separate Unit Operating Agreement) providing for the unitized development or operation of the leased lands with other lands or any zone or formation underlying such unitized lands or any of the leased substances therein

h) Provisions relating to the effect of a default by the lessee under the lease and the actions which must be taken by the lessor to obtain a remedy due to a default.

Pooling vs unitization: Pooling: usually a smaller area, pooling to make up 1 unit Unitization: generally larger

The Nature of the Lease

Berkheiser v Berkheiser (1957 SCC)Facts Testatrix granted a lease and the landIssue Does the interest go to the land owner? Nature of lease is proft à prendre (form of contract)

Interest in land gives owner right to enter onto and take Purpose for entry is important Look to actual activities granted Here, because presence or absence of materials not known, couldn’t

be granting actual title – proprietary interest only possible once substance controlled: “An initial grant of title to something may prove to be non-existent can scarcely be said to be [compatible with the risk of

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discovering nothing].”

Omers Energy v AB (Energy Resources Convservation Board) (2011 ABCA)Nature of a lease

Oil and gas leases are contracts Use normal contract interpretation:

o Search for intention of the partieso Don’t deviate from clear terms unless absurd, or effect is clearly

contrary to parties’ intentionso Ambiguity: extrinsic evidence as interpretive aid

The habendum clause

Durish v White Resource Management (1987 ABCA)Issue Is a gas lease terminated if producing well shut in during 2nd

term?Held Interpret habendum clause (shut-in wells clause)Why do we have the habendum clause?

Continuance of lease for duration of production (either while drilling or while substances are being produced)

Canada-Cities Service Petroleum v Kininmouth (1964 SCC)Rule Essential task is to interpret the terms of the lease (like a contract),

irrespective of what courts have said about other leasesFacts 10 year lease, lessee didn’t start drilling until 10th year

No productive before 10 years u Continues anyways, produces after Argues lease is still valid and subsisting because started drilling

within 10 years, lease should continue as long as drilling continues

H clause Doesn’t impose a duty to drill, just an expiry if don’t produce within the term

Because no duty, there is no default Just expires

Force majeur

Force majeur only comes into play after the 10yr term has been extended

After primary term, the leases you’re given are going to be progressively shorter

Application Here, did not get past the 10 year term, so the protection against clauses beyond control (force majeur clause) doesn’t apply

Had to get into production within the 10 years Too bad, so sad

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The suspended well clause (and effect of the default clause)

OmersFacts Well shut in because of water problems, previously producing

Lease reaches expiration date while well still shut in

Issue What does “capable of producing” mean? (Does the suspended wells clause cover this and extend the licence?)

Held Must be capable in existing state (without further work or maintenance), and must be in “meaningful quantities”.

Facts Primary term expired, continued lease by producing, but then shut the well in

Omers tries to rely on force majeur clause Force majeur clause: if a well capable of producing is shut in,

contract continues as if is producing. Requires:a) Well on the landsb) Capable of producing

Purpose of clause: recognizes there will be times when it’s not economic to produce, will be breaks in production

Starting point: lessor and lessee entered into K to make $ Purpose would be defeated if allowed to continue indefinitely at

time when well not actually capable of producing – would encourage sitting on it

Looks at US jurisprudence that requires “capable of producing in paying quantities”

Various lease provisions intending to balance rights, ensure lease can’t continue indefinitely without good reason

Holds: must be capable of producing “meaningful quantity” in existing state (without further work/maintenance) If have all that infrastructure there and ready to go, must be a good

reason not to produce

Note Does not determine what volume required: here was clearly negligible, so leaves for a future case to determine.

The shut-in well clause (and the effect of the default clause)

Absence of production:Durish v White Resource Mgmt

Holds Lease does not oblige White to continue or pay default, is just a choice (although there will be consequences – lease will disappear)

Cannot require production Because not a default, also did not require notification

Facts Well shut in during second term due to court action

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Clause: if shut it “for any cause in accordance with good oil field practice”o Term of art, would have meaning in the fieldo What is “good oil field practice”?o holds that fact there was a contract dispute does not count as

good oil field practice Shut in clause: provides option to pay, must meet payment

requirement (anniversary date) to maintain lease Default clause: requires notice

o It’s important to know if the payment is an obligationo If have obligation to pay and didn’t (a default), then would have

to notify themo But this wasn’t a requirement/obligation, so no notice was

required

Absence of market:

Freyberg v Fletcher Challenge Oil and GasFacts Lady Freyberg is an elderly widow

Clause 3: shut in well clause Much more explicit that in Duresh: “as the result of a lack or an

intermittent or uneconomical or unprofitable market” Default clause

Issue What is an “uneconomic market”?Held Test: “prudent lessee.” Objective standard, but influenced by

character and nature of lessee, reasonable expectations of parties.Onus is on lessee to prove.Test: Whether, based on the information available at the time, a prudent lessee would have foreseen profitability. Prudent lessees defined on objective standard influenced by:

1. Character and nature of lessee (if experienced, held to higher standard)

2. Reasonable expectations of the parties (if lessee foresaw profitability, will be “practically conclusive” unless can show was based on error or oversight, operator’s view can be influential but not as important as lessee’s)

Onus of proof: should be on respondent to prove lack of market, because the knowledge of the subject matter lies particularly with respondent (otherwise, onus is usually on party asserting – remainder of issues will be on Lady Freyberg to prove)

trial read in obligation: so if “widow living in England” fails to give notice, is effectively without a remedy

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: not appropriate to read in obligation Main reason: not to delay production unreasonably (lists policy

reasons) “Entire agreement” clause: uses as reason to not imply terms

o But entire agreement clauses are usually just used to avoid relevance of discussions outside of written contract

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Upstream Regulation in BC

1. Regulation of Wells and FacilitiesOGC- Agent of the Crown- Set up in 1998- Theory was to have a single agency dedicated to the appropriate

regulation/management of the upstream sector in BC - Also now review pipelines- Regulation of major facilities like LNG facilities- Unusual review provisions – certain members of the decision can be reviewed by a

“review official”- Section 72 of Oil and Gas Activities Act that review by the tribunal can be used as an

alternativeo Oil and Gas Commission Act in 1998, administrative review was to the courts (JR)o This Act allows for internal review and internal appealo Pros/cons: more people will likely appeal (cheaper and simpler)

- Ability to impose administrative penaltieso Being used more and more because of the expense and difficulty involved w/

charging people with offences

a. The role of the public in oil and gas development- Make sure clients consult!- Separate from Aboriginal consultation (discussed later)- Debate recently about the process in the Kinder Morgan pipeline

o Social licenceo Policy basis for requiring public consultation

- Any project with potential impacts on local peoples – need to have adequate process or people will express displeasure in other manner

- P13-14 notification obligations chart – check out associated regulations as well

Consultation and Notification Manual See printout

Consultation and Notification Regulation See file

b. Surface Rights Crown land- Not a freehold lease, but land with Crown tenure

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- In most of BC, landowner doesn’t own subsurface rights- On Crown land, OGC can grant permission to use- Can also obtain a form of “better tenure” under the Land Act (usually @ very extensive

exploration phase/production phase)o Rights under OGC Act aren’t that strong (i.e. not trespassing, but if someone else

has a stronger right (e.g. buys land in f/s) your rights are trumped – see Nelson) Private land Need agreement of land owner No expropriation right if just exploring Surface rights board will usually give access to the property, can hear disputes about

surface leases (between surface rights owner and land owner)

Petroleum and Natural Gas Act ss. 138, 142Entry on unoccupied Crown land138  (1) Subject to subsection (2), on application by a person who is

(a) a permit holder as defined in the Oil and Gas Activities Act, or(b) an applicant for a permit under the Oil and Gas Activities Act,and on submission by the person of plans or other information required by the commission, the commission, subject to any terms or conditions the commission considers appropriate, may authorize the person to enter, occupy or use unoccupied Crown land(c) to carry out an oil and gas activity,(d) to carry out a related activity, or(e) to comply with an order of the commission.

(2) The Lieutenant Governor in Council may make regulations respecting the criteria the commission must use in exercising its discretion under subsection (1).

Authority to enter, occupy or use land142  Subject to section 39 of the Oil and Gas Activities Act, a person may not enter, occupy or use land

(a) to carry out an oil and gas activity,(b) to carry out a related activity, or(c) to comply with an order of the commission,unless the entry, occupation or use is authorized under(d) a surface lease with the landowner in the form prescribed, if any, or containing the prescribed content, if any, or(e) an order of the board.

Land Act s.1111  (1) Subject to compliance with this Act and the regulations, the minister may dispose of surveyed or unsurveyed Crown land by any of the following means, as the minister considers advisable in the public interest, to a person entitled under this Act:

(a) application;(b) public auction;(c) public notice of tender;(d) public drawing of lots;(e) public request for proposals;(f) listing with a brokerage licensed under the Real Estate Services Act;(g) land exchanges.

(2) The minister may, under subsection (1),(a) sell Crown land,(b) lease Crown land,

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(c) grant a right of way or easement over Crown land,(d) grant a licence to occupy Crown land, or(e) transfer ownership of fossils located on Crown land, grant the right to remove fossils from Crown land, or both, if done in accordance with section 50 (3.1).

(3) In a disposition of Crown land under this section, the minister may impose the terms, covenants, stipulations and reservations the minister considers advisable, and without limiting those powers, the minister may impose some or all of the following terms:

(a) the applicant must personally occupy and reside on the Crown land for a period set by the minister;(b) the applicant must do that work and spend that money for permanent improvement of the Crown land within that period the minister requires;(c) the consideration that must be paid for a disposition of Crown land.

(4) Subsection (3) does not apply to a disposition under section 51 (1) or an exchange of Crown land under section 95.

i. Surface Rights BoardOn private land:

o Need agreement of landowner or an order from the Surface Rights Boardo Exploration right ≠ expropriation rights (unlike BC Hydro, other commissions)o Surface Rights Board (Mediation and Arbitration Board previously) part of OGC Mandatory mediation followed by arbitration if unsuccessful SRB will also determine compensation if they grant an Entry Order Can also go there to dispute the lease – company and landowner have entered into

a lease, then later disputes arise. SRB can adjudicate the lease. Recently, SRB can award advanced costs. Theory: landowner shouldn’t be out of

pocket when fighting a big oil company for compensation (might need experts such as appraisers).

Petroleum and Natural Gas Act 147 Jurisdiction of board

158 Mediation/arbitration for right of entry162 Determination of money payable and security163 Application relating to loss or damage caused by right of entry164  Mediation/arbitration for parties to surface lease

168  Actual costs, definition of landholder & operator169  Advance costs170  May order party to pay costs174  Enforcement of right of entry176  Failure to pay

180  may suspend right of entry

Surface Rights Board Information Sheet #1 – see document

Velander v Imperial OilKey Factors the board will consider when awarding costs:

Reasons for incurring costs

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Contribution of counsel and experts retained Conduct of a party in the proceeding Whether a party has unreasonable delayed/lengthened proceeding Degree of success in the outcome of the proceeding Reasonableness of any costs incurred Novel arguments (landowner advancing) Need for expert evidence

Holds There is no presumption in favour of landowner receiving costsApplication Here, was not compulsory (application for rent review)

No presumption of land owner receiving costs Not a particularly novel argument

ii. Agricultural LandAgricultural Land Reserve- Government put a reserve on a lot of agri land across the province (Peace River, Lower

Mainland)- Need permission to do non-agri work on agri land- You can now make application to the OGC for that purpose (delegated powers for that

purpose)

Agricultural Land Commission Act ss. 25 and 26Non-farm use and subdivision application by owner 25  (1) On an application for permission for non-farm use under section 20 (3) or for subdivision under section 21 (2), the commission may do one of the following:

(a) refuse permission;(b) grant permission;(c) grant permission for an alternative non-farm use or subdivision.

(2) If the commission makes a decision under subsection (1) (b) or (c), it may impose terms it considers advisable.(3) An application referred to in subsection (1), except such an application from a first nation government, may not proceed unless authorized by a resolution of the local government if, on the date the application is made, the application

(a) applies to land that is zoned by bylaw to permit agricultural or farm use, or(b) requires, in order to proceed, an amendment to an official settlement plan, an official community plan, an official development plan or a zoning bylaw.

(3.1) An application referred to in subsection (1) in relation to settlement lands may not proceed unless authorized by a law of the first nation government of the first nation that has legislative authority over the settlement lands.(4) In deciding an application referred to in subsection (1), the commission may meet with the applicant or may make a decision on the basis of written representations only.(4.1) A decision of the commission under subsection (1) (b) or (c) in relation to proposed settlement lands may not be made effective unless and until

(a) those lands are established, in whole or in part, as settlement lands, and(b) the first nation government in relation to those settlement lands enacts a law approving the commission's decision and provides a certified copy of the law to the commission.

(4.2) Unless a decision under subsection (1) (b) or (c) first becomes effective under subsection (4.1), the decision expires on the earlier of the following dates:

(a) the date the decision expires according to its terms;(b) the date that a notice to suspend negotiations takes effect.

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(5) The commission must deliver its written decision to the owner.

Delegation of section 25 powers26  (1) The commission may enter into an agreement with any of the following to enable a local government, a first nation government or an authority to exercise some or all of the commission's power to decide applications for non-farm use or subdivision with respect to lands within the jurisdiction of the local government, first nation government or authority:

(a) a local government;(b) an agent of the government, a public body or a public officer prescribed by regulation;(c) a first nation government in respect of settlement lands.

(2) An agreement under subsection (1) between the commission and an authority may exempt a non-farm use in a specified area within the jurisdiction of the authority from the requirement of an application on the condition that the authority conducts audits and reports to the commission as required by the agreement.(3) If an agreement is entered into under subsection (1), the local government, first nation government or authority must, with respect to an application covered by the agreement,

(a) consider each application in the prescribed manner, and(b) advise the commission in the prescribed manner of each application received and of the decision made on each application.

(4) A decision made by a local government or authority under this section must be made by resolution of the local government or the governing body of the authority and a decision of a first nation government under this section must be made by a law of the first nation government.(5) If the commission delegates its power to decide applications under section 25 to a local government, a first nation government or an authority by an agreement entered into under this section, the decision of the local government, first nation government or authority is a decision of the commission for the purposes of this Act.(6) If an authority has the power to decide an application under an agreement entered into under subsection (1), an application that would otherwise be required to be submitted to the local government or first nation government under section 34 (3) must be made directly to the authority.(7) If a local government, a first nation government or an authority has the power to decide an application under an agreement entered into under subsection (1),

(a) the local government, first nation government or authority may retain the entire fee payable under section 34 with respect to the application,(a.1) section 34.1 applies to the applicant with respect to the application, except that a reference to the commission in that section must be read as a reference to the local government, first nation government or authority, and(b) sections 39 to 45 apply to the application as if the application were before the commission.

(8) If the commission enters into an agreement under subsection (1) (c) with a first nation government in relation to settlement lands, that agreement or another agreement under this Act must include a definition of "owner" for the purposes of paragraph (b) (i) of the definition of "owner" in section 1 (1).

Guidance Document for Oil and Gas Applications within the ALR – see file and document

c. Wells and Facilities

Well Authorization- Need approval from OGC for any “oil and gas activity”- “Oil and gas activity” defined under OGAA Act- s. 24: Applications

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Oil and Gas Activities Act, ss. 1, 21, 24, 25, 26

"oil and gas activity" means(a) geophysical exploration,(b) the exploration for and development of petroleum, natural gas or both,(c) the production, gathering, processing, storage or disposal of petroleum, natural gas or both,(d) the operation or use of a storage reservoir,(e) the construction or operation of a pipeline,(f) the construction or maintenance of a prescribed road, and(g) the activities prescribed by regulation;

S.2 definition of a “permit” Compliance and enforcement powers

o Significant powers to cancel/issue/amend permits S.8: if conducting O&G activity, OGC steps into position of the usual ADM (e.g.

instead of going to the Minister of Environment)o Specified enactments: the types of acts that would typically need to obtain

permission from when doing an O&G activity (e.g. Forest Act, Environmental Management Act)

o Idea was to create a “one-stop-shop” for O&G development (OGC) Federally-regulated pipelines also have this rule.

o S.9 – (2): commission's powers under section 8 do not include the power to issue an approval with respect to a pipeline that is subject to the National Energy Board Act (Canada).

o (3) Despite subsection (2), the Lieutenant Governor in Council may, by regulation, extend the commission's powers under section 8 to include the power to issue an approval under one or more specified enactments with respect to a pipeline referred to in subsection (2).

OGC can grant permission, but not under Environmental Management Act or Heritage Act EXCEPT for Northern Gateway (it’s in a schedule somewhere) where the OGC can issue all approvals

OGC wouldn’t issue the authorization for this pipeline (Spectra, Kinder Morgan, TransCanada) – NEB would. However, provincial laws of general application will continue to apply to pipelines, and will still need provincial approvals.

Well Permit Application Manual – see document

Spacing and Target Areas When drilling a well, province divided up into grid Unconventional resources have changed things – spacing areas have become larger! Drilling and Production Reg talks about spacing areas for gas wells

o S.7(6) unconventional zones – Schedule 2(6) A well permit holder may not produce from a well in an unconventional zone listed in Schedule 2 if a completed portion of the wellbore is located closer than the distance listed in Schedule 2 for that zone to land with respect to which the well permit holder

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Also: Petroleum and Natural Gas Act – OGC can set different spacing area65.1 (1) The minister may make regulations respecting other than normal spacing in an area of British Columbia if the minister is satisfied that the regulations

Advantages to unconventional zones – smaller surface impact for larger drilling area

Petroleum and Natural Gas Act ss. 65-6765: normal spacing areas65.1: other than normal spacing66: ministerial designations (can designate other than normal)67: no production unless other than normal spacing areas pooled with adjoining areas

Drilling and Production Regulation ss. 5-75: position of wells

5  (1) If a well or facility is(a) closer than 100 m to the natural boundary of a water body, or(b) 100 m or more from the natural boundary of a water body, but situated so that, given the topography or other relevant factors, it is likely that an uncontrolled flow of oil, gas, brine or another fluid may reach the water body,the permit holder must ensure surface-control features are in place, or surface-control measures have been taken, to contain escaping fluids.

(2) A permit holder must not drill a well within(a) 40 m of the right of way or easement of any road allowance or public utility,(b) 100 m of a permanent building, installation or works,(c) 100 m of a place of public concourse, or(d) 100 m of a reservation for national defence.

6: spacing and target areas for oil wells6  (1) In each pool, the target area for an oil well in a normal spacing area at any depth is the area inside, but not nearer than 100 m to the sides of, the spacing area.(2) If the boundary of a location does not coincide with the side of a normal oil well spacing area, the oil well target area must have sides not nearer than 100 m to the boundary.(3) A permit holder may complete one oil well in each normal spacing area on a location that contains more than one normal spacing area if each well is located not nearer than 100 m to the boundary of the location.(4) For the purposes of section 54, the off-target penalty factor for an oil well completed outside the oil well target area is: [formula](5) Subsection (4) does not apply to any of the following:

(a) the discovery well of an oil pool;(b) a well drilled and completed before May 2, 1958;(c) an off-target oil well located not nearer than 100 m to the bound

7: spacing and target areas for gas wells7  (1) In each pool, the target area for a gas well in a normal spacing area at any depth is the area inside, but not nearer than 250 m to the sides of, the spacing area.(2) A permit holder may complete one gas well in each normal spacing area on a location that contains more than one normal spacing area if each well is located not nearer than 250 m to the boundary of the location.(3) For the purposes of section 65, the off-target penalty factor for a gas well completed outside the gas well target area is: [formula](4) Subsection (3) does not apply to any of the following:

(a) the discovery well of a gas pool;(b) a well drilled and completed before May 2, 1958;(c) an off-target gas well located not nearer than 250 m to the boundary of the location.

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(5) Subsections (1) to (3) do not apply to the completed portion of a well producing from an unconventional zone listed in Schedule 2.(6) A well permit holder may not produce from a well in an unconventional zone listed in Schedule 2 if a completed portion of the wellbore is located closer than the distance listed in Schedule 2 for that zone to land with respect to which the well permit holder

(a) is not the owner of the petroleum and natural gas rights or the holder of the location, or(b) does not have an agreement with the owner or holder respecting the production.

Storage Reservoirs Only 1 in BC (Aitken Creek Storage Facility) Usually depleted oil and gas field Sometimes economically useful to re-inject the gas into them Generally have to get approval before you go exploring for one Government can create a storage area itself and tenure holders can lease (although this

hasn’t happened yet) Can be considered a public utility

o Unocal case – public utilities offer essential services to the public, usually a monopoly

o Utilities Commission decided that b/c Aitken Creek fit w/i the definition of a utility, they had to be regulated as such!

Oil and Gas Activities Act"oil and gas activity" means

(a) geophysical exploration,(b) the exploration for and development of petroleum, natural gas or both,(c) the production, gathering, processing, storage or disposal of petroleum, natural gas or both,(d) the operation or use of a storage reservoir,(e) the construction or operation of a pipeline,(f) the construction or maintenance of a prescribed road, and(g) the activities prescribed by regulation;

Petroleum and Natural Gas Act ss. 126 – 130126: Exploration licence for underground storage area127: Designation of storage area128: Vesting of storage reservoir129: Compensation130: Lease of storage reservoir

Regulation of Production

Pooling and Unitization Pooling (smaller area): joint development of a spacing area

o Can be compulsoryo If spacing area partly freehold / partly not, then either freehold owner or tenure

owner can apply for pooling order Unitization covers a broader area (many spacing units)

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o Advantageous to develop as a single unito Powers somewhat limited in BC; rarely happens (see article “Northern Greed”)

S.5 of the Petroleum and Natural Gas General Regulationo Largely repealed except wrt unitization requiremento The minister must encourage efforts initiated by owners of oil and gas

interests in any pool to consolidate, merge or otherwise combine their interests for the purpose of accomplishing the more efficient and more economical development and production of the oil and gas resources of the pool, irrespective of whether that purpose is accomplished by unit operation, cooperative development or joint participation.

Petroleum and Natural Gas Act ss. 68, 69, 114, 115Pooling of locations to operate spacing areas68  (1) Two or more holders of locations in a spacing area may pool their locations for purposes of joint

development of the spacing area or joint operation of a well in the spacing area, or both.(2) If locations are not pooled by agreement, the minister, either on the minister's own initiative or on application by a holder, may invite submissions from interested parties for the purpose of determining whether or not the locations should be pooled.(3) After reviewing the submissions, the minister may refuse to make an order, or the minister may

(a) order that the locations, or parts of the locations, as the minister may designate, be pooled,(b) order, subject to the Oil and Gas Activities Act, that a well be drilled and operated, or, if drilled, that it be operated,(c) designate a person the minister considers appropriate for the purpose of carrying out an order, designation or requirement under this section,(d) specify the proportions in which holders share petroleum and natural gas produced,(e) specify the proportions in which holders share the costs of drilling, operating and abandoning the well, and(f) specify the manner and time in which, and the conditions subject to which, petroleum and natural gas produced from the pooled locations must be sold.

(4) If locations are pooled, the drilling, operating and abandoning of the well, and the production of petroleum and natural gas from the well, are deemed to be carried out, in the proportions referred to in the pooling agreement or order, on the location of each holder.(5) The minister may make a pooling agreement on behalf of the government on the terms the minister believes proper.

Pooling by board order69  (1) If petroleum and natural gas in a spacing area is reserved in part to persons other than the

government, those persons, or the holder of a location in the same spacing area, may apply to the board for an order that all petroleum or natural gas or both in that spacing area be pooled.(2) The board must include in the order terms and conditions respecting the pooling that it considers necessary.

Unit agreement114  (1) The minister may, on behalf of the government, enter into a unitization agreement for the unitized

operation of a field, pool or storage reservoir, or a part of any of them, and on its execution the unitization agreement is, subject to compliance with any applicable requirements under section 75 of the Oil and Gas Activities Act, and other relevant provisions of this Act, binding on all parties to it, including the government.(2) Section 117 does not apply to an agreement entered into under this section.

Unitization order115  (1) On receiving an application for a unitization order from a working interest owner or group of

working interest owners who have agreed in writing to a proposed plan of unit operations, the minister

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may invite submissions from interested persons to consider the advisability or necessity for an agreement.(2) After reviewing the submissions, the minister may reject the application or make a unitization order requiring that the plan of unitized operations proposed by the applicant be applicable to all of the proposed unit area, or any smaller area the minister determines, and on the making of the order it is binding on all owners of interests in the unit area.

Petroleum and Natural Gas General Regulation s.5Position of wells5  (1) If a well or facility is

(a) closer than 100 m to the natural boundary of a water body, or(b) 100 m or more from the natural boundary of a water body, but situated so that, given the topography or other relevant factors, it is likely that an uncontrolled flow of oil, gas, brine or another fluid may reach the water body,

the permit holder must ensure surface-control features are in place, or surface-control measures have been taken, to contain escaping fluids.

(2) A permit holder must not drill a well within(a) 40 m of the right of way or easement of any road allowance or public utility,(b) 100 m of a permanent building, installation or works,(c) 100 m of a place of public concourse, or(d) 100 m of a reservation for national defence.

Production Allowables Calculated under the Petroleum Production Regulation If you overproduce your allowable, can lead to your well being shut in (but unlikely) Generally not required for gas, but if there is an overproduction of gas, you have to

make up for this in subsequent periods (s.66)

Drilling and Production Regulation ss. 61, 65, 6661: overproduction of oil65: restriction of gas production66: overproduction of gas

Well Spacing and Target Area Regulations – see powerpoint

Rateable Take and Common Processor/Carrier Allocation and production If you have more than one owner of rights in petroleum field, and can’t agree who takes

what portion, then can apply to have the government decide This is very rarely used! (generally speaking, companies work this out themselves) S.133.1 of the PNGA If you do get an order like this, the Board will require certain things be proved

o Drainage must be proven (milkshake analogy)o Reasonable opportunities to manage this (both parties are trying to maximize

their wells)

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o Whether they’ve taken the opportunity to drill new wells for this purpose (seems counterintuitive)

o Reasonable good-faith attempts to negotiateo Order would make economic senseo Good conservation reasons to impose this

Petroleum and Natural Gas Act s. 133.1Production and allocation133.1  (1) To promote the efficient use of the petroleum and natural gas reserves in British Columbia, the

minister, by regulation, may limit the total amount of petroleum or natural gas that may be produced from a well, field or pool to an amount specified in the regulation or order.(2) If satisfied that it is necessary to do so because of an emergency or a disruption of service, the minister, by order, may determine

(a) the maximum amount of petroleum or natural gas that may be produced from a well, field or pool and distributed through gathering and processing facilities, and(b) the method by which the production and distribution referred to in paragraph (a) must be carried out.

(3) The commission may, by order, allocate the amount of petroleum or natural gas that may be produced from a pool in a manner among the wells in the pool so that each owner may produce or receive a share of the petroleum or natural gas that is fair in the opinion of the commission.

Celtic Exploration LtdTest for common carrier

Provisions under Utilities Commission Act (ss.65-67) in BC that you can apply for someone to become a common carrier (obliged to provide services to others - i.e. we don’t want two pipelines running side by side) Producible reserves available for transportation Reasonable expectation for the gas (is there a market at the

end?) Reasonable arrangements for use of pipeline to get the gas out Common carrier and processor orders are the only economical

way to transport and process the gas

Facts 1 party wants allocation order (rateable take) and common pipeline and processing

Enhanced Recovery Schemes

OGAA s. 75Special projects: 75  (1) The commission, on its own initiative or on application by a permit holder or an applicant for a permit, may designate, by order or in a permit, any of the following as a special project:

(a) the development or production of petroleum, natural gas, or both, from a field or pool or portion of a field or pool, using repressuring, recycling, pressure maintenance or any other technique to enhance recovery;(b) the application of innovative technology, as defined by regulation;

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(c) an innovative method of carrying out oil and gas activities and related activities;(d) any other prescribed oil and gas activity or method of carrying out an oil and gas activity.

(2) The commission may(a) make a designation under subsection (1) with or without conditions, and(b) cancel or suspend a designation

(i)   at the request of the permit holder to whom the designation was given, or(ii)   if it appears to the commission that there has been a contravention of this Act, the regulations, a permit, an authorization or an order respecting the designation or a condition of the designation.

(3) A permit holder with a permit for an oil and gas activity that has been designated as a special project under subsection (1) may apply to the commission for other than normal spacing under section 65.1 of the Petroleum and Natural Gas Act.(4) For the purposes of a special project or of special projects generally, the Lieutenant Governor in Council and the board may each, in exercising a regulation-making power under this Act, make a regulation that is contrary to or inconsistent with a provision of this Act.

Innovative Technology (experimental) Scheme Application Guideline S.75 OGAA – Special Projects

o Includes unconventional resources, innovative technology Can apply to OGC for approval of a special scheme

o Specifically, s.75(1)(b)o Development and production of shale gas (unconventional resources)

Can affect the spacing areas as well S.78 PNGA: specialized royalty agreements

o If have a special project, special royalty rate can be set for just that project (gov’t wants to incentive experimental schemes to improve efficiency of industry)

Cabinet can make special regulations that are inconsistent with the Act in order to regulate that special project

Describing nature of project is likely to be sensitive commercial information – OGC can retain that info on a confidential basis, but will eventually be required to disclose it

Unconventional resources – need for new regulatory approaches? Different in both by methodology, and in the rock that they’re drilling in Only been in the past 10 years or so that there has been much commercial development

in fracking/shale gas development Requires bigger scale/intensity to be economic, which increases total number of wells

o Means more roads, pipelines, other facilities Requirement to be sensitive to impact on FN, environment, local development Cumulative effects becomes a bigger issue (Blueberry) Fracking – water usage

o Well integrity (perforations all along)o Concerns re impact on potable watero Disposal of waste fluidso Seismicity

Surface issues like increased truck traffic

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A New approach to regulating unconventional resource plays in AB

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Upstream Regulation in Alberta

1. Alberta Energy RegulatorRegulatory Reform: at what cost efficiency

2. Role of the Public Interest in Upstream Oil and Gas Regulation

a. Energy Resource ConservationOriginal purpose of the boards: resource conservation (get less out of the reserve if drilling too fast with too many wells)

Giant Grosmont Petroleum Ltd v Gulf Canada ResourcesFacts Pool: gas over top of bitumen

If take the gas out first, won’t be able to get the bitumen because no gas pressure

Well shut in to prevent this

Board Regulators “fixated” on conversation: board doesn’t want the bitumen stuckIssue Does board have the power to order this? Yes. Says “waste provisions” are broad enough to allow such order.

Huge amounts of deference shown to board here

b. Environmental Resource ConservationRecognition of societal values other than just conservation of oil resources.

Application for an Exploratory Well – Whaleback Ridge AreaFacts Whaleback area is special

Integrated resource planWhaleback area also sitting on a very valuable NG reserve

ERCB Backs integrated resource plan Other environmental resources, very unique and pristine area Aesthetic, wildlife, First Nations interests

Re Polaris ResourcesLocation Just on boundary of Whaleback protected areaIssue Did Polaris meet mitigation requirements?ERCB Held No. ERCB ticked off – Polaris not appreciating the nature of the protected

land it’s operating close to, did not even come close to level of mitigation required.

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c. Standing If ERCB decides to hold a hearing, generally open the doors to most interested parties

Not all parties will be fully funded If have an interest in land, then will be fully funded (landowners funded win or

lose) Environmental groups

Partner up with someone who does have an interest Generally allowed to participate in ERCB hearings (bring valuable public interest

perspective) BUT board will not have an open hearing if there are no land interests at stake

Responsible Energy Development Act ss. 32-34s. 32: A person who believes that the person may be directly and adversely affected by an application may file a statement of concern with the Regulator in accordance with the rules.

s. 33: (1) Where a statement of concern is filed in respect of an application, the Regulator shall decide, in accordance with the rules and subject to section 34, whether to conduct a hearing on the application.(2) If the Regulator makes a decision on an application without conducting a hearing, the Regulator shall publish or otherwise make publicly available the Regulator’s decision in accordance with the rules.

s. 34: (1) Subject to subsection (2), the Regulator may make a decision on an application with or without conducting a hearing.(2) The Regulator shall conduct a hearing on an application

(a) where the Regulator is required to conduct a hearing pursuant to an energy resource enactment,(b) when required to do so under the rules, or(c) under the circumstances prescribed by the regulations.

(3) If the Regulator conducts a hearing on an application, a person who may be directly and adversely affected by the application is entitled to be heard at the hearing.(4) A hearing on an application must be conducted in accordance with the rules.

Dene Tha’ First Nation v Alberta (Energy and Utilities Board)

3. The Role of Equity in Regulation(Industry equity)

a. Spacing and off-target penalties

Beau Canada Exploration v Alberta (Energy and Utilities Board)Held You can’t change the rules of the game after the game’s already started –

at least not retroactivelyComment Interesting contrast to Giant Grossmant: re relying on a general power

(here, the court says “no, would need specific powers”; there, it was okay to rely on general powers)

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b. First well in a pool

Nycan Energy Corp v Alberta (Energy and Utilities Board)Takeaway more inclined to monkey around with tribunal decision if it’s a dispute

between two industry interests. Less so if it’s a public interest issue

ERCB Can’t be first well on the pool if…Issue First well on the pool rule. Race!

c. Common carrier and common processor orders Basin masters: takes economies of scale to build pipelines, processors

Although generally like to encourage comptetion, create a utility set up for plants/pipelines (don’t want everyone building their own facilities)

Historically considered to be a remedy against drainage

Re Rider Resources Inc.Prior to this case

Had to show your lands were being drained by Big Bad Processor who would not let you into his plant

Rule Even in absence of drainage, board will order at Common Carrier / Common Processor as remedy for too high fees

Rationale Fairness element as well as drainage

d. The Ethane Wars

Re Solex Gas Processing Corp ERCB adjudication between the two interest Side-streaming plants

e. Regulation and the use of Alternative Dispute Resolution

Responsible Energy Development Act ss. 63 - 65

Barlett v Alberta (Energy and Utilities Board)Rule Lawyer can settle on behalf of clients, that settlement is binding.Facts Huge land use conflict, multi-party settlement agreement, decision made

when some of the parties weren’t present (but lawyer was)Rationale Places a lot of importance on encouraging settlement

4. Regulators Overriding ContractsRe TransCanada Pipeline Ventures

Rule ERCB can override contracts, subject to limitations (GIC has to approve)Doesn’t matter who the parties are, just & reasonable rates are still just &

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reasonable rates – monopoly can still be exploitativeFacts Party realizing they got a bad deal, other parties being charged less, want out

of their contract

5. Security for Abandonment and Reclamation Statutory requirement to reclaim doesn’t do much good if owner becomes insolvent and

walks away Orphan well fund: all industry kicks in to

Oil Sands Mining Reclamation in AB: a discussion of the prior regime and the new mine financial security program

6. Securing Surface RightsSproule v Atalink Management

Compensation without expropriation?

Difficult to compensate if you don’t have to give up your land Why there is a difference with wind turbines (can’t

expropriate for turbines)

Can you expropriate on reserve lands?

Theoretically, yes, but don’t in practice as a matter of government policy

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Pipelines and LNG

1. Constitutional Issues

Westcoast Energy Inc v Canada (NEB) – 1998 SCCFederal jurisdiction?

2 ways to become part of a federal undertaking (see Constitutional section)

Here Didn’t have to consider 2nd option because is found to be functionally integrated

Westcoast Energy Inc. (Re) – LNCNEB 2001Facts Maxhamish pipeline

Gathering pipeline, previously build and permitted by AEC under provincial jurisdiction

Once built and permitted, transferred to Westcoast, therefore federal jurisdiction

Province Too easy to transfer jurisdiction just by transfer of ownership Jurisdiction shopping Concentration of ownership in Westcoast might lead to

imbalance in bargaining power (relagtively small shippers)

Held Test is the test, can transfer jurisdiction by transfer of ownership.

TransCanada Pipelines Ltd (Re) – 2009 LNCNEBFacts Had been operating under provincial legislation for a long time,

everyone knew it was probably actually supposed to be under federal jurisdiction, but nobody minded the AB regulation, so it was left alone

Constitutional issue just not arising if no interest in doing so

Decision Reviews constitutional aspects of pipeline regulation [26-32]

Benefits and burdens of certificate [118]

2. Construction and Operation Before build a pipeline (or other utility), need permission from the NEB, Utilities

Commission, etc.

“Light Handed Regulation” Subadditivity: economically logical for only one provider to exist (don’t have a whole

series of pipelines, sewers, transmission lines) Hence regulation of public utilities

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National Energy Board Act: Ss: 6, 31-38, 47, 52-58 Definitions: new unit, old unit, useful life Pipeline definition:

o Includes “to be used” (need permission to buildo Includes communication network, does not include sewers/watero Very broad definition, but usually talking oil and gas (occasionally water, but

rarely cross provincial borders) CPCN: Public Convenience or Necessity

o Is it in the public interest?o Discretion remarkably broado NEB only makes recommendations re CPCN (54)o Factors in 52(2)

Change in time limits (submission of reports to Minister) – 15 months – indication of desire to move along quickly

Can required chair person to take any measure necessary to meet timeline (remove members, etc possible procedural fairness issue)

o 55.2: standing requirement – “directly affected by the decision”o 56: revoke or suspend certificateo 58: exemption from requirement to obtain CPCN or leave to open

Not home free after CPCNo Leave to construct (s.34)o Need to give noticeo Required to submit plan, book of references (set out specific routing of pipeline)o If landowners say no, obliged to go to hearing (s. 35)o S. 36: determine best possible route (detailed route hearing)o Leave to open (final technical stage, NEB sends inspectors)

OGAA Ss. 9, 23, 28, 53, 74, 76 Definitions of pipeline, pipeline permit Provincial laws of general application will still apply to federally regulated

pipelines, so long as don’t go to core of federal jurisdiction 9: OGC doesn’t presumptively issue provincial permits wrt federal pipelines, but can Act doesn’t include much about pipelines specifically, but “oil and gas activity” includes

pipelines Preliminary plan of proposed route: purpose is to enter onto land to do surveys 53: can step in and run the thing (see this with utilities in general), see fairly frequently

in BC because there are many water utilities Pipeline crossings: what happens if crossing pipelines with each other

o Need permissiono In some cases, pipe may be movedo Focus of section is on the costs (generally, if you want it moved, you’re paying)

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Utilities Commission Act 45: need permission of UC if going to operate a public utility 46: procedural IF have been operating before certain date, deemed to have CPCN for it and for future

expansions

Emera Brunswick Pipeline Co.Board’s jurisdiction, process

Responsible for pipelines and for oil, gas and electricity exportsRegulating tolls and tariffsJurisdiction and status as an independent court of recordNEB's purpose is to promote safety, environmental protection and economic efficiency in the Canadian public interest in its regulation of pipelines, international power lines and energy development

Level of detail [35]: sets out required detail. Don’t need to have every detail laid out.

Public Interest [41] what is public interest: Broad array of factors: “The public interest is inclusive of all

Canadians and refers to a balance of economic, environmental, and social interests that change as society's values and preferences evolve over time. As a regulator, the Board must estimate the overall public good a project may create and its potential negative aspects, weigh its various impacts, and make a decision.”

has, in the past, also taken into account other considerations related to the project, such as potential for commercial impacts, environmental protection and public safety. In certain cases, the Board has also considered whether the addition of pipeline facilities to the existing Canadian pipeline infrastructure was in the public interest

No firm criteria, very fact-specific, varies with circumstances Weigh benefits and burdens

[48] list of factors that may be considered: the application, the location, the commodity involved, the various segments of the public affected by the decision, societal values at the time, and the purpose of the applicable section of the NEB Act

there are certain factors that are typically addressed in pipeline applications. For example, public safety, environmental, and socio-economic concerns

the Board heard evidence on engineering design and safety issues; economic considerations, such as supply and markets; public engagement and Aboriginal consultation; socio-economic and environmental effects of the Project; and land and routing matters.

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3. Traffic, Tolls and TariffsNEB: Traffic, Tolls, and Tariffs Tolls must be “reasonable”

o Enough that can cover investment, have sufficient financial strength to attract capital

o Can’t charge toll for pipeline unless included in tariff that’s approved by boardo Statutory instruments, not contracts, but they are negotiatedo Balance of interests: shippers, pipeline company

Financial Regulation of Pipeline Companies under the Board’s Jurisdiction (NEB) “Test year”: tolls set prospectively

o Opportuntiy to get reutnr of costs and make reasonable profit, but is a regulated profit

o Operation expenses, depreciation of equipment, return on capital (interest paid), maintenance, return on investment

o Board usually allows but does not guarantee a returno Ability to attract investment comparable to other enterprises of similar risk,

maintain financial integrityo Goal is to ensure company providing essential public service is able to

continue operating Increasingly, use negotiated settlements (board approval req’d) or just make own deal

and board only gets involved if someone complains

Toll Design What rates do you charge when have various customers with varying needs/uses? Factors:

o Different serviceso Different distanceso Need to generate sufficient revenue to cover costso Allocate to users based on cost of service/usage requirements

User pays: you pay for the service you require Terms of service

Expansions?o Options:

Rolled in approach: cost split between all users (can be beneficial to everyone as expansion may make more efficient, etc.)

If is a new and distinct service, one requiring it should pay the whole thing

TransCanada Pipelines Ltd (Re) – 2013Facts Tolls on mainline system

Throughput on system declining, therefore tolls need to go upRegulatory death spiral (“fundamental risk”)

Issues 1. Cost of service2. Rate of return

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3. Incentive rateCost of service

Regulatory compact: in return for your being obliged to serve people, you are guaranteed a certain rate of return

Board says not confiscatory of some equipment if the equipment is not “used and useful”

Operating public utility system, even though obliged to serve customers, it’s not as though the own it (you are taking on some risks as well)

Fundamental risk: point at which tolls exceed what market will bear – we’re not quite there yet, so not disallowing costs at this point

Rate of return

Setting a fair return: Use fair return standard Return comparable to that of investment with like risk Note: aren’t that many comparables in BC Enough to enable financial integrity Permit attracting capital Figuring this out requires assessment of the firm’s risk, analyse the

types of risk that TCPL was facing and compare that to other like risks

o Supply risks: is there going to be enough? Mitigated to some extent

o Market risk: expecting market to build up againo Competitive risks: remain high (e.g. fracking)o Regulatory risk: trying to mitigate some of that risk through

longer-term tolls

Incentive Rate

Incentive mechanism: how board try to get such utilities to operate more efficiently – reward system

Reward TCPL is revenues exceed a certain baseline Incentive toll making not usual

What’s “reasonable”

Very broad power and discretion to decide what’s “reasonable”o Flexibleo Damn hard to appeal, will give tremendous deferenceo Allows board lots of scope in how will set rates:

Incentive mechanisms Allows pipeline to negotiate individually with customers (like

negotiated settlement) – if shippers and pipeline satisfied, board will usually be satisfied (stands in for public interest)

Negotiated settlement does have to be ultimately approved by Board – can say no if doesn’t think is in public interest

Examine the relative sophistication of the parties to decide if negotiation process is fair

Negotiated tolls can include incentives

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o NEB can also mediate

4. Other regulatory issues and developmentsIncentive or light-handed regulation

5. LNG Facilities

OGAA: definition of “facility”o Highly technical regulation

Oil and Gas Activities Act General Regulation s.2o Construction and operation of a facility included in required activities permit…

LNG facilities located on federal land (reserves)? Provincial laws may still apply, may not if directly telling feds what to do with their

lands Constitutional uncertainty about applicability of province law, but fed’s don’t really have

the legislation First Nations Regulation: allows feds to incorporate provincial law

o E.g. Haisla Nation Liquefied Natural Gas Facility Regulations Kitimat facility Idea is to make seamless system of regulation, if not under federal

jurisdiction will be provincial

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Sustainability

1. Environmental Considerations: Project-Specific

Part of DM for any energy project today, anything from an O&G well to a major pipeline Can be central to a project-by-project basis (example: Northern Gateway and Kinder

Morgan pipelines, Site C) Scope of what’s considered can be relatively narrow Hard to look at the totality, make trade-offs between different priorities Example: for Kinder Morgan, they aren’t looking at the potential impacts upstream or

downstream (i.e. the environmental effects of extraction)o Practical reasons: would turn any project into an omnibus discussion on the

value of O&G to society – should a tribunal do this? It’s a political issue more than anything.

o GSX pipeline project – debate turned into whether natural gas should be used at all. NEB panel member

Environmental Assessment Act ss. 10, 11 Generally involves major projects

o Energy storage facilities (LNG facilities)o Pipelines of a certain sizeo Power plants of a certain size, transmission lines (of a certain size – 500 kV

or more – read this provision carefully because the size is embedded in the definition)

EA: major public processo BC: final recommendation to and decision by 2 Ministers

Purpose: identify whether there will be significant effects before the project starts o Environmental, economic, social, health and heritage effectso EA tries to evaluate these, explain to Ministers whether or not a project should

be approved Project-by-project basis Courts struggle with the regulatory regime – no “magic” to the limits set in the

Reviewable Projects Regulation in terms of size and what’s requiredo Discretion given to Cabinet

Reviewable Projects Regulation Part 4: Energy Projects

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Federal Reduction of CO2 Emissions from Coal-Fired generation of electricity regulations Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity

Regulations, SOR/2012-167 Not actually regulating emissions but rather carbon intensity. For example,

methane (a GHG) is expressed as a CO2 equivalent (8x the amount of CO2). Certain tonnage of CO2 can be emitted per GWH (gigawatt hour) of electricity produced

o Sometimes criticized – this is a measure of efficiency, rather than a total amount!o Counterargument: electricity is going to be produced anyway, so you need to

produce it in the most efficient manner possible New unit – if somebody produces a new coal-fired unit (possibly, but unlikely given the

economics) or old unit (reached end of useful life – see embedded definition) then this Act applies

o 2019/2029 for the old units – not seen as stringent!

OGAA s. 4, s. 25(1)(b) Regulates O&G activities in BC Consideration of environmental issues is quite central to OGC’s job S.4 – purposes of the Act

o Purposes only constrict interpretation of the Act (doesn’t expand anything) S.25 – note that “prescribed” means by use of regulation

Environmental Protection and Mgmt Regulation Ambiguity here: material effect – who determines materiality and how? NOTE: only applies to Crown land “Practicable” – another ambiguous term “High priority wildlife” S.21 – exemption from everything if not “reasonably practicable”

o Very broad exemption power S.26 of the OGAA – penalties for breaching penalties

BC Hydro and Power Authority v BC Utilities CommissionBackground At the time, integrated resource planning was big – incorporating

various considerations in deciding what a public utility should do to meet its resource requirements E.g. we all use electricity. Utility has choice of what resources it

uses to meet the demand at any given time. Resource stack = graph of electricity use throughout the year

and where it comes from Peak demand (the coldest day of the year, in the morning when

everyone is using electricity) Base load = the demand in the summer at the middle of the night In BC, base load is met by hydro

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Peak load is met by a variety of sources – usually the most expensive sources and maybe importing power, which is incredibly expensive when in high demand

Integrated resource planning is an attempt to look at the suite of possible resources (building new facility, buying from other markets, reduce usage) and look at their societal and environmental values

Issue Can the Utilities Commission require BC Hydro to do Integrated resource planning?

The Act doesn’t give Utilities Commission power to do this On an individual basis, every major energy project goes before

the UC to obtain a Certificate of Public Means and Necessity One of the things the UC wanted to get at through IRP was

comparing different resource stacks, and that environmental concerns would be addressed through the Certificate

EA would already have been done, therefore typically the UC doesn’t look that hard at environmental issues

Kinder Morgan Pipeline List of Issues CPCN application before the NEB Upstream/downstream not considered – as discussed above, b/c practical reasons

2. Cumulative Effects and Class Assessments

BCEAA ss. 11, 20

Class assessments under the EAA S.20: series of projects that may be related to one another (theoretical, never been

used). E.g.: fish farming, many concerns are common irrespective of the actual location Partial class assessment: if one has been done under 1(a) for the general class, then

under 2(a), a particular project (a particular fish farm), is exempt from the EA for those same issues.

Full class assessment: very hard to imagine this being used. Would be a complete exemption from the EA requirements.

Class assessments look beyond individual project to similar projects that might have similar effects

o Efficiency but also a means of looking broadly at an industry

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Cumulative Effects Looking at one project, but from the perspective of how it interacts with other ones S.11 of the BC Act specifically mentions cumulative effects

Bow Valley Naturalists Society v Canada (Minster of Cdn Heritage)Held Not just any project that anybody’s dreamed up – need to consider only

likely projectsWhy? Have to draw a line somewhere

Dene Tha’ First Nation v BC (Minister of Energy and Mines) Good description of the tenure system Concerns being expressing wrt multiple types of development within same area

o Not uniquely a FN concern, but FN are at the forefront Treaty 8 area (AB and NE BC)

o Treaty 8: right of FN to continue to plant and fish and continue to use lands the way they had previously

FN is specifically asking court for something other than a project-by-project basis FN asked to comment on many, many projects that affect their lands (takes up

many resources to evaluate each of these projects) At the time of granting tenure, the strategic resource-development choice has been

made Extent of development is not known at the time of tenure – but at what point should

it be developed then? Court warns that if development of shale gas is to continue, the scope of

accommodation and consultation will likely broadeno [129] I find that in this case, to this stage, the Crown has met the standard

discussed by Finch C.J.B.C. in West Moberly First Nations, as quoted above, of giving full consideration to the rights of the Aboriginal peoples while also recognising and respecting the rights of the broader community. That is not to say that I doubt the force of the DTFN's concerns. Ultimately, if the development of shale gas in the CEB is to continue and grow, the scope of the process of consultation and, if warranted, accommodation, will likely broaden.

3. Economic LeversRegulate whole sectors of the economy rather than individual projects

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a. Carbon Tax

Carbon Tax Act Simple approach, direct economic signal to the user/purchaser that if they want to use it

they will pay for that privilege Purchaser pays a certain tax, tax on transfer of fuel, import into BC (ss.8-10 Carbon Tax

Act), tax on use (s.11) Usually revenue neutral

How the carbon tax workshttp://www.fin.gov.bc.ca/tbs/tp/climate/A4.htm

b. Cap and trade Similar to a carbon tax: both put a price on carbon & send a price signal Usually goes industry-by-industry (total cap) and then within the industry, the players

can trade amongst themselves to meet the total cap Total cap is reduced over time: industry players can either buy from a competitor or

become more efficient Can also introduce offsets: can pay somebody else to plant a new forest to offset your

carbon emissions (but this is stupid) Can become complex: requires a lot of enforcement & monitoring Issue with contract shuffling: if only some jurisdictions you operate in have a cap and

trade system, an energy operator with a broad portfolio could sell their “solar power” in BC and their “coal power” elsewhere

o Would need to institute a C&T system broadly to prevent this Would require a highly complex and expensive emission trading scheme to work European C&T market has largely collapsed (price per tonne dropped significantly)

Consultation Backgrounder: carbon pricing

(http://www2.gov.bc.ca/assets/gov/environment/climate-change/policy-legislation-and-responses/climate-action-legislation/carbon-pricing-bg.pdf)

4. Mechanisms for promotion of alternative energy

a. Feed-in tariffs FITs require utilities to give a preferential amount to certain types of projects

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o Solar, wind, renewables guaranteed a certain amt per kWh that might exceed market rate

o BC: Clean Energy Act definition: "feed-in tariff program" means a program, that may be established under section 16, under which the authority offers to enter into energy supply contracts with persons generating electricity from clean or renewable resources using prescribed technologies in prescribed regions of British Columbia;

o S.16 FIT may be required by regulation FITs have had a mixed response

o Tried in ON – very controversial partly b/c consumers don’t really want to pay extra, marketed as development of a “green economy” that didn’t pan out

Domestic content requirements in ON: World Trade Organization complained, ON was forced to repeal these

Clean Energy Act s.2(c), 16, definition of “feed in tariff program”

Utilities Commission Acts.46(3.1) and (3.3)

Electricity Actss. 15, 25.35http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_98e15_e.htm#BK60)

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b. Renewable Portfolio Standard Even more direct than a FIT Tells all public utilities that a certain proportion of their energy produced must

be from renewable resources Nova Scotia Reg: applicable to NSP, municipality selling electricity within its borders

o Like carbon tax, gradually ratchets up Somewhat becoming a trade issue

o In California has become a trade barriero Directly benefits domestic producerso Still less than FITs

Renewable electricity regulationsRenewable Electricity Regulations, N.S. Reg. 155/2010, ss. 4, 5(1) and (2), 6(1) and (2), 6A(1) and (2), 6B, 44-47, and definitions of “load-serving entity”, “independent power producer” and “renewable low-impact electricity” (http://www.gov.ns.ca/just/regulations/regs/elecrenew.htm

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Regulatory Compact Public utility: monopoly supplier of an essential public service Regulatory compact: the collection of benefits and burdens that come with being a

public utility Monopoly: no close substitutes

o Arise through barriers to entry: Natural: market power Created by law: give only 1 company a licence

2 Public Policy Concerns:o Can charge a very high priceo Limit scope of services

Provide only to customers who are most profitable Key concern RE public utility

Limitations on monopolies in Canada:o Competition Act – mainly relates to non-public-utilitieso Public Utility Regulation

Why allow PU’s to operate as monopolies?o Big footprintso Very expensive to set up – limit wasteful investmento Certainty for investmento Service at less costo Encourage provision in smaller markets

Public utilities have been around for awhile (CL invention), apply to different contextso Enshrined in statue in 1275 – “justly and reasonably used”o 1659: ferrymen and whorfingerso 1877: grain elevators and stockyardso 1973: BC hydro

Elements of the Regulatory Compact

1. Obligation to Serve Costs associated with good will / trust split equally, half in rates & half by

shareholders Utilities Commission Act

o 28(1): within 200m of supply line (because costs shared with all others)o 28(3): can be relieved of obligation in certain circumstances (“in the public

interest”)o 29(1): more than 200m away, can apply to commission

Factors: Alternative supply Costs

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2. Without Discrimination Note: Chastain said without unreasonable discrimination 9(2)(b) 9(4): decided by commission

3. Reasonable Price Utilities commission determines and sets the rates Final arbitrator in each of the 3 elements of public utility is the commission

Court decisions Limitation: judicial system not the best way to deal with disputes between

utilities and customerso Not good enough o just resolve complaints, need to set rules for going forward

(e.g. set rates) courts can’t do thiso Non-expert decision makers: especially economics (price setting, what’s

unjust?), technical knowledge of industryo Unfamiliar with polycentric issues: judicial system focused on resolving disputes

between 2 parties, finds it difficult (especially at T) to deal with competing public interests, challenge to identify and give standing to all the appropriate parties

Usually 3 step process to get appeal:o Reconsideration by regulatory (have now generally just become bolstering)o Leave to appeal (1 )o CA (3 ’s), SOR: very high level of deferenceo So, utility regulator is really the final word in most cases

Memorial Gardens Association v Colwood Cemetery CompanyCPCN The barrier to entry, primary mechanism by which public utilities are

afford their “monopoly” service rightUCA s.45 Can’t construct or operate a PU plant/system without CPCN

Construct becomes important when PU wants to make additions

CA Applies strict definition of necessity (must be immediate need)SCC Do not require immediate need

Necessity does not have this narrow meaning Commission has discretion – unless the decision is really

outrageous, leave it alone

Chastain v BC Hydro and Power AuthorityFacts BC Hydro charges securities (down payments before will provide

power) to people who don’t own homes / are young / students / poorBC Hydro’s argument

Referred to self as “The Authority”, argued not a public utility

Held “The tariffs, insofar as they purport to authorize the requirement of security deposits on a selective basis, are invalid”

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BC Hydro does have a monopoly, is therefore a public utility

CL concept, flexible tool “Now the wharf and crane are affected with a public interest” Transformation of private property because creation of a monopoly

3 elements of regulatory compact

OEB v Ontario Power Generation Prudency Test

Is one test that can be used, but not the only one (OEB not require to use prudency test)Not a rule of law Enormous advantage: can put all the evidence to show why the

decision was made at the time Makes it very difficult to challenge

Hemlock Valley Electrical Services v BC (Utilities Commission)The upside of the regulatory compact

Illustrates what happens when Commission doesn’t respect requirement to keep rates high enough to get a reasonable return

Facts Commisison set rates at level that wouldn’t allow the rate of return promised

Reason: 84% rate increase is way too high, “rate shock” Decided to phase in increase over 3 years Annual cost was supposed to include the $48K that the C had

said was a fair amount to recover

Once you decide what the costs are (including reasonable rate of return), you can’t then set rates below that

Note Commission could have let HVES earn it back over future years, recover from rate payers later and that would have been fine Like decision in BC Hydro reconnection fee – wouldn’t delay

reducing the fee, but allows recouping in the future

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Public Utilities and the Common Good

1. Setting Rates for Low-Income Customers

Dalhousie Legal Aid Service v Nova Scotia PowerFacts NS Power applied for rate increase

Legal Aid Service intervened to ask for special rate for low-income users Utility Board finds it did not have authority to consider implementing Statute requires those in “substantially similar circumstances” be charged

same amount S.147 prohibits charging different rates (except for listed exceptions)

Held “Substantially similar circumstances” is about how you’re using power, not your financial circumstances (amount of power, residential vs. industrial, voltage, etc.)Customers in similar circumstances had to be charged equally

Why? Must provide service in non-discriminatory fashionContrasted provision for bypass rate (special rates for people who might be leaving system)Board’s approach affirms its role as “competition surrogate”

Note There was an explicit statutory authority for discrimination (preferential rates for legions, seniors’ clubs, etc.) expressio unius

Advocacy Centre for Tenants-Ontario v Ontario (Energy Board)Facts Rate affordability program

Differences between the Act in Ontario and in Nova Scotia (re Dal case)

Held Board is economic regulator, not a formulator of social policy. However, was authorized to employ “any method or technique that it considers appropriate” to fix “just and reasonably rates.”

Board has jurisdiction to establish rate affordability program for low income consumers, to consider ability to pay in setting rates

Not really within board’s mandate Alternative/usual way of meeting these ends: tax breaks – more

appropriate because is public policy decision, should be made by leg’ Unless it is explicitly in the legislation Winter Warmth Program is a different idea, could be considered part of

PR/marketing Generally, people should be treated the same

BUT statute grants very broad authority:

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Has broad authority to use alternative options to set “just and reasonable” rates

Therefore can interpret this to set lower rates for low income customers, so long as still meeting requirements of return, just and reasonable rates for remaining customers, etc.

Dissent Although 36(2) gives broad authority to approve “just and reasonable” rates, the words don’t explicity confer power to do so. SCC in ATCO held that a discretionary grant of authority to a tribunal cannot be viewed as conferring unlimited discretion.

The words of 36(3) do not seem to confer jurisdiction, agrees with Board that if legislature intended to let them consider income level as a rate class determinate, it would have made that explicit (because was updating the Act, had opportunity to do so)

Consideration of what is “just and reasonable” is between utility and consumers as a group

Demand-Side Measures Regulation, definition of low income customer, ss. 3, 4(1.1)(c) Under Utilities Commission Act, for certain purposes it’s good to have demand-side

management Minister can make regulation to determine if demand-side measure is adequate What’s adequate?

o S.3: adequate only if plan portfolio includes a measure specifically to help low income customers reduce power consumption

Tool to get at difficult of demand-side measures (requires up front capital)

2. Integrated Resource Planning: incorporating externalities

Can public utility regulation take into account environmental impacts?

Massachusetts Electric Company v Department of Public UtilitiesFacts Department wanted to incorporate environmental externalities into

selection of energy source Could be a potential source of power whose cost appears to be the

lowest but would lose its status as the cheapest option because of the cost of externalities

Department did not have the authority to do this. Had some authority over environment, but not to make decisions like

this

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BC Hydro and Power Authority v BC Utilities CommissionFacts Commission wanted to implement requirement for integrated resource

plans Trying to incorporate social and environmental objectives

No. You do not have the authority to tell Hydro how to manage its affairs to this extent (i.e. cannot direct how to manage business) Intruding into management of company Minutia of business should not be run by Utilities Commission Statute is hugely detailed, if legislature wanted to include this ability to

require (especially with penalty), would have explicitly included it

Utilities Commission Actss. 44.1(2), (8), (8) Public utilities generally required to do integrated resource planning

Clean Energy Actss. 2, 3(1) Strong emphasis on demand-side measures Consideration of government energy objectives (a lot focused on environment) in

deciding:o Integrated resource planningo CPCNo Application to purchase powero Etc. (to be considered in many circumstances)

3. Demand-Side Measures: energy conservationUtilities Commission Actss. 43(1)(b), 44.2(1)(a), (5)(d), 125.1(4)(e)

Clean Energy ActDefinition of “demand side measure”, sections above

Demand-Side Measures Regulationss. 4(1.1), 4(2) Total resource cost test: measure all the benefits and the costs

o Avoiding cost of other methods of obtaining power

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o Costs to utility, rate-payers “Adequate” requirement for low income

o S.4(2): in determining…must use total R cost test and in using that test must consider the benefit of the demand-side measure to be 140% of its value…

o A lot of low income programs have higher costs than benefit Often not a lot of uptake, but government really likes ‘em, so.

Societal costs test: also include benefit of avoided environmental damage

California Standard Practice Manual: Economic Analysis of Demand-Side Programs

4. Using Rates to Promote Conservation

BCUC: BC Hydro and Power Authority Residential Inclining Block Rate Application Idea: if above certain use, you’re forcing utility to provide your electricity from more

expensive sources, so you should pay more for it (instead of having the cost inflicted on other users)

Hydro estimated quite high savings

Shore Power Regulation Using a rate for environmental purposes Instructing Utilities Commission to accept a specific rate from BC Hydro Purpose: incentivize using electrical power at port, avoid cruise ships using Bunker C

fuel

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Aboriginal Involvement in Energy Projects

1. ConsultationHaida Nation v BC (Ministry of Forests)Does gov’t owe duty to consult & accommodate before any legal title to land has been proven? YES

Facts Haida Gwaii is heavily forested British Columbia government has been giving out certificates to cut trees Haida Nation is in process of making title claim, and objects to the logging of

Haida Gwaii Claim that the gov’t has breached their fiduciary duty by replacing and

transferring licensesIssue Is the government required to consult with about decisions to harvest trees π

from their purported title area and to accommodate their concerns about the harvesting of these natural resources before they have proven their title to land and their Aboriginal rights ?

Held Yes. And the crown failed in this obligation.Π Title claim is strong, but it is complex and will take many years to prove

Clear-cutting of forests will forever despoil way of lifeΔ Government has right to manage forest resource for the good of all British

Columbians Until prove their title claim, they have no right to consultation or π

accommodationHonour of the Crown and Duty to Accommodate

Duty to consult is grounded in honour of crown [16] In all its dealings with Aboriginal peoples, from the assertion of Crown

sovereignty to the resolution of claims and the implementation of treaties, the Crown must act honourably [18]

Honour of Crown gives rise to different duties in different circumstances1. Discretionary control over specific aboriginal interests, honour of

crown gives rise to fiduciary duty Crown must act in the best interest in exercising discretionary control over

the specific aboriginal interest at stake Fiduciary will not arise when right has merely been asserted but not

proven2. H of C infuses treaty making and interpretation process

In making and applying treaties, the Crown must act with honour and integrity and avoid even the appearance of sharp dealing [19]

3. Where treaties remain to be concluded, the honour of the Crown requires negotiations leading to a just settlement of aboriginal claims This is where the duty to consult and accommodate comes in

Why? HoC requires that aboriginal rights be determined, recognized, and respected. This requires the Crown to participate in the processes of negotiation. While this process continues, HoC may require it to consult and, where indicated, accommodate aboriginal interests [25]HoC may require it to consult with and reasonably accommodate Aboriginal interests pending resolution of the claim. To unilaterally exploit a claimed

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resource during the process of proving and resolving the Aboriginal claimants of some or all of the benefit of the resource, that is not honourable [27]

Source of duty

1. Courts relies on canons of construction2. Problem with applying fiduciary law: interests Haida claiming are

insufficiently cohate in Canadian Law (exist prior to proof)3. Reconciliation – recognizes Haida presence before sovereignty, needs to be

reconciled with Crown sovereignty4. Jurisprudence5. No conquest, and no treaty reconciling sovereign interests

When does duty arise

Duty arises (kicks in) when crown has rule and constructive knowledge of a potential aboriginal right and adverse effects [35]

Duty actually arises at assertion of sovereignty and never finishes [32] Fulfilling honour of crown is a process [32] Proof of title takes time [26], crown cannot ride roughshod / act

unilaterally over Aboriginal interests if claim not proven yet [29]Content and scope

Content of duty is determined by strength of claim & impact on the claim. Spectrum: [38]

Aboriginal Claim Weak, right limited, or potential for infringement minor, the only duty on the Crown may be to give notice, disclose information and discuss any issues raised in response to the notice

Strong prima facie claim, potential infringement is of high significance and the risk of non-compensable damage is high: deep consultation aimed at finding satisfactory interim solution may be required: may include deep consultation, submissions, formal participation, written reasons, mediation, impartial decision makers and accommodation

Aboriginal groups do not have veto over what can be done with land pending final proof of claim, consent is only appropriate in cases of established rights No duty to reach agreement

Good faith required at every step. Must substantially address concerns.What does consultation look like?

Putting forward proposals which are not finalized Informing of all relevant information Not promising an outcome Willingness to change plans Make every “reasonable effort” Including participation in decision-making process Reasonable timelines Financial assistance Hard bargaining is okay

Third parties The duty to consult and accommodate does not extend to third parties Third parties may be delegated certain procedural parts of the

consultation process However, the Ho C cannot be delegated 3P can be liable in negligence, breach of k, breach of duty of care,

dishonesty

Mikisew Cree First Nation v Canada (Minister of Cdn Heritage)Extending Haida to Treaty Context

Rule There is an implied term of consultation and accommodation in treaties between aboriginal groups and the crown.

Facts Aboriginal group in northern Alberta signed treaty with government

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surrendering land in exchange for certain rights Government wanted to build road through reserve, consulted with group and

made change, but did not re-consult with group on change Treaty contained taking up clause Aboriginal groups claim breach of fiduciary duty Background: the land mass of this surrendered territory is huge

Issue Did the crown discharge its duty to consult with group?πHeld Yes, but did have a duty.Π Proven rights under the treaty were infringedΔ Exercise of treaty right to “take up” land is not infringement of treaty but

performance of it Terms of the treaty do not contemplate further consultations when taking up

occurs Process followed by us was sufficient in this case

Court: “There is in the ministers argument a strong advocacy of Crown action, which not only ignores the mutual promises of the treaty, both written and oral, but is the antithesis of reconciliation and mutual respect” [49]

Salteau v VintageFacts Appeal by Saulteau First Nations from an order dismissing an application for

judicial review, to quash a decision of the Oil and Gas Commission which authorized Vintage Petroleum Canada to construct a sour gas test well site within the traditional territory of the Saulteau people.

The authorization contained a number of conditions that sought to address the concerns of the Saulteau First Nations.

Saulteau First Nations had for many years expressed concern about the encroachment of oil and gas development in the territory in question:o Wildlife and habitat data used by the Crown was unreliable or incompleteo Incremental nature of the oil and gas approval process meant that the

cumulative effects of development on their ability to exercise treaty rights were not being addressed.

The Chambers Judge concluded that the Commission did not breach its constitutional duty under the Petroleum and Natural Gas Act to consult and accommodate the Saulteau people.

The Saulteau First Nations submitted that the Chambers Judge did not apply the proper test in determining whether the Commission had properly fulfilled its obligations and that he erred in dismissing the appellant's constitutional challenge to the Petroleum and Natural Gas Act.

Held Appeal dismissed. The Chambers Judge thoroughly analyzed the evidence and arguments before him. He employed the correct test.

Why? The authorization contained a number of conditions that sought to address the concerns of the Saulteau First Nations.

Dene Tha’ First Nation v Minister of Environment

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Facts Application by the Dene Tha' First Nation for judicial review of a decision respecting the construction of the Mackenzie Gas Pipeline (MGP). Dene Tha' alleged that Canada breached its constitutionally entrenched duty to

consult and accommodate First Nations people adversely affected by its conduct. Identified as the moment of the breach as its exclusion from discussions and

decisions regarding the design of the regulatory and environmental review processes related to the MGP.

The Ministers denied that any duty arose at that point and, in any event or in the alternative, asserted that their behaviour with respect to the Dene Tha' was sufficiently reasonable to discharge its duty to consult.

Held The Ministers breached their duty to consult the Dene Tha' in their conduct surrounding the creation of the regulatory and environmental review processes related to the MGP from as early as the first steps to deal with the MPG in late 2000 through to early 2002 and continued to breach that duty to the present time.

Why? Dene Tha' had a constitutional right to be informed of the decisions being made and provided with the opportunity to have its opinions heard and seriously considered by those with decision-making authority.

The Dene Tha' were never given that opportunity as the Ministers had taken the position that no such duty to consult had arisen.

When the Ministers did decide to "consult" with the Dene Tha', upon the establishment of the process for the Joint Review Panel, the Dene Tha' were given 24 hours to respond to a process which had taken many months and years to establish and had involved substantial consultation with everyone potentially affected but for the Dene Tha'.

A remedies hearing was to be held after hearing from the parties as to the issues which should be addressed at that hearing.

2. Other materials to consider

Qikiqtani Inuit Association v Canada (Minister of Natural Resources)

Agreement between the Inuit of the Nunavut Settlement Area and Her Majesty

Aboriginal consultation guide for preparing a renewable energy approval

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