Davis LLP - Environmental, Energy and Resources Law

Federal Government Seeks To Overhaul The Environmental Assesement Process

Mon, 07 May 2012 13:48:00 PDT

Recently the Federal Government introduced amendments to several environmental statutes through Bill C-38, titled the “Jobs, Growth and Long-Term Prosperity Act”. Bill C-38 is a budget implementation bill that seeks to implement provisions of the budget tabled on March 29th, 2012.  Bill C-38, amongst other measures,  proposes to enact the Canadian Environmental Assessment Act, 2012 (the “CEAA”) which will establish a new federal environmental assessment regime. Designated Projects Under the CEAA, “designated projects” will be subject to environmental assessment. The CEAA contemplates regulations that will enumerate what constitutes a “designated project”. At the time of the writing of this blog entry, those regulations have not been publicly released.   Statements made by the federal government suggest that designated projects will be defined to focus on “major projects”, although there has been little direction provided to date as to what would constitute a major project.   Responsible Authorities The CEAA designates the Canada Nuclear Safety Commission, the National Energy Board (the "NEB") and the Canadian Environmental Assessment Agency as “responsible authorities” for designated projects that are subject to environmental assessment. In addition, the CEAA holds that a federal authority that performs regulatory functions may hold public hearings in the case of designated projects that include activities that are linked to that federal authority. Time Limits for Review One of the central elements of the CEAA is that it sets express time limits in which environmental assessments must be concluded. The CEAA imposes the following time-limits: <ul> <li> General Environmental Assessment: within 365 days after the date on which the notice of commencement of the environmental assessment is posted.</li> <li> Panel Review: within 24 months of the establishment of the review panel, the review panel must submit their report to the Minister and the Minister must issue a decision statement.</li> </ul> The Minister has authority to vary these time-limits. <ul> <li> National Energy Board Review: NEB environmental assessments must be completed within18 months. The amended National Energy Board Act states that the NEB must submit a report to the Minister no later than 15 months after the day on which the applicant has provided a complete application. This 15 month time period may, by order, be extended by a maximum of three months.</li> </ul> Transition   The CEAA includes several transitional provisions to deal with projects that will be already be undergoing environmental assessment at the time the CEAA comes into force. <ul> <li> Screening: any screening of a project commenced under the former Act, subject to some exceptions, will be continued as if the former Act had not been repealed</li> <li> Comprehensive Studies: Any comprehensive study of a project which was commenced under the Canadian Environmental Assesement Act, 1992 (the "former Act"), is continued as if the former Act had not been repealed. However, for projects commenced before July 12, 2010 and where the responsible authority is not the Canadian Nuclear Safety Commission, a time limit has been introduced: a comprehensive study report must be provided by the responsible authority to the Minister and the Canadian Environmental Assessment Agency within six months of the day on which the CEAA comes into force.</li> <li> Review Panel: Any assessment by a review panel that was commenced under the former Act will be continued under the CEAA once it comes into force. In such a case, the Minister is required to establish a time limit within which the decision statement must be issued.  </li>   </ul> The transitional provisions of the CEAA do not give guidance on how the Ministerial requirement to establish time limits will interact with previously agreed to timelines.   Delegation and Substitution   The CEAA seeks to establish an environmental assessment process guided by the principle of “one project, one review”. Under the CEAA, if the Minister is of the opinion that a provincial government’s (or any agency or body of a provincial government) environmental assessment process would be an appropriate substitute, the Minister must, on request of the Province, approve the substitution of the provincial environmental assessment process . The Minister may not, however, substitute a process if the Canadian Nuclear Safety Commission or National Energy Board is the responsible authority or if the project has already been referred to a review panel. Public Participation Public participation in the environmental assessment process under the CEAA, will be limited to interested parties who are “directly affected by the carrying out of the designated project” The determination of whether a person or group is directly affected will be made either by the responsible authority or the review panel, as applicable.   Decision Statement Under the CEAA, at the end of an environmental assessment process, the decision maker (e.g. the responsible authority, the review panel, etc.) must issue a decision statement to the proponent of the project, which will inform the proponent of the decisions made and include any conditions that the proponent must comply with to carry out the project.   Enforcement The CEAA holds that any person who contravenes an order or does not comply with the conditions of a decision statement is guilty of an offence and is subject to a fine not exceeding $200,000 for a first offence and a fine not exceeding $400,000 for a subsequent offence.   Any person who is held to have obstructed or hindered a designated person from exercising their duties under the CEAA is guilty of an offence and is subject to a fine not exceeding $100,000 for a first offence and is subject to a fine not exceeding $300,000 for a subsequent offence.   Conclusion:   The CEAA constitutes a comprehensive overhaul of the federal environmental process and represents one of the most fundamental shifts in Canada’s regulatory and environmental policy in its history.   It must also be noted that the CEAA is not yet law, and further changes and clarifications could emerge through the parliamentary process.

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Environmental Review Sparks Debate

Thu, 03 May 2012 09:04:00 PDT

Critical debates have been sparked following the announcement by Natural Resources Minister Joe Oliver of an overhaul of environmental assessment rules. So far it appears that voters have accepted that some change to environmental assessment rules is worthwhile, but the public will be paying close attention to the motives behind any change. The stakes are high for both the Conservatives and the NDP. The question of motive is a risk for the government as well as for the opposition. For the Tory government ministers who talk about the amount of potential interventions will be reinforcing the public confidence that they are exercising good governance. However, it has been suggested that spending millions to audit environmental NGOs may make voters wary that the motive of the Tory government is to smother legitimate debate, or that they are not confident that their ideas will hold up under scrutiny. For the NDP opposition, the risk is that criticizing proposals for change will portray disinterest in the economy, or indifference to legitimate reform. The Conservatives and the NDP have both made calls for the middle ground. Minister Oliver has emphasized the importance of robust regulation (regardless of whether implementation is by federal or provincial officials) in the overhaul of environmental assessment rules. While the NDP environment critic, Megan Leslie, has also acknowledged that there are areas where regulation can be improved. As the debate unfolds, if Conservative motives are trusted, there will still be a need to ensure the policy features appear, and are, sound. Therefore, the details of the environmental reform package will matter and will be of consequence. Both the Conservatives and the NDP will be weakened if their motives appear to be ideologically driven, and they will be strengthened if they concentrate on sensible solutions. The hope is that the outcome of the debate will be constructive, that is, an important piece of legislation properly thought out, and debated on its merits. Co-authored with Lee Axford, Student at Law

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Federal Government to Announce Proposed Measures for Streamlining Project Approvals

Tue, 17 Apr 2012 08:33:00 PDT

One of the highlights of last month's budget speech was the <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/highlights-of-the-2012-federal-budget/">announcement by the federal government</a> that it would overhaul the environmental approval process for major resources projects. The measures are expected to include a time limit on the length of reviews, general streamlining of the process, and most significantly, ensuring that only a single review (either federal provincial but not both) is carried out for each project. The <a href="http://www.theglobeandmail.com/news/politics/ottawa-to-unveil-sweeping-changes-to-environmental-oversight/article2404607/">Globe and Mail is reporting</a> that Natural Resources Minister Joe Oliver will make a major announcement of the details of the proposed streamlining measures later today.  Further details will follow as they become available.

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'Adverse Effect' doesn't require an impact on the natural environment

Tue, 10 Apr 2012 07:54:00 PDT

The Court of Appeal for Ontario released an important decision this week on the definition of “adverse effect” under the Environmental Protection Act (the “EPA”). Many provisions of the EPA, particularly those prohibiting certain activities or requiring reporting of certain events to the Ministry of the Environment (the “MOE”) are triggered only if there is a possibility of an adverse effect.  Further, the EPA definition of “contaminant” hinges on whether a product may cause an adverse effect. The EPA sets out the definition of adverse effect as one or more of any of the following: (a) impairment of the quality of the natural environment for any use that can be made of it; (b) injury or damage to property or to plant or animal life; (c) harm or material discomfort to any person; (d) an adverse effect on the health of any person; (e) impairment of the safety of any person; (f) rendering any property or plant or animal life unfit for human use; (g) loss of enjoyment of normal use of property; and (h) interference with the normal conduct of business. On its face, this definition is extremely broad and could include many impacts which do not actually negatively affect the natural environment. Until recently, however, the EPA was generally only applied by enforcement officials where there was concern over impacts to the natural environment. In Ontario (Environment) v. Castonguay Blasting Ltd. the situation arose, however, where the Defendant, Castonguay Blasting Ltd. (“Castonguay”) was charged with a violation of the EPA for an event which caused property damage, but had no negative impacts on the natural environment. Specifically, Castonguay was responsible for errant blasting work which resulted in rock debris landing on a house and vehicle. Castonguay took responsibility for the property damage, provided compensation to the property owners, and notified both the Ministry of Labour (pursuant to the Occupational Health and Safety Act) and the Ministry of Transport (as they were working on roadway construction at the time of the incident). They did not report the incident to the MOE, believing that the lack of negative impact on the natural environment negated such a need. The MOE disagreed, however, and charged Castonguay with failing to report the discharge of a contaminant into the natural environment that causes or is likely to cause an adverse effect, under section 15(1) of the EPA. At an Ontario Court of Justice trial, Castonguay was acquitted of the charge, but this decision was reversed on appeal to the Superior Court of Justice. On March 16, 2012 the Court of Appeal for Ontario released its decision pursuant to a further appeal in the matter. Finding for the MOE, the Court of Appeal relied on a plain reading of the EPA and the definition of “adverse effect”, as set out above, and saw no reason to constrict its application to situations involving threats to the natural environment. The Court seems to acknowledge that there must be some nexus between the natural environment and the act in question, but that this connection does not have to be as strong as requiring an actual or potential negative impact on the natural environment before the EPA can be engaged. In this case, the fact that the debris was a natural material - blasted rock - was sufficient. Whether a particular material is considered a “contaminant” having an “adverse effect” will be an very fact specific investigation, but parties should take this decision as a cautionary tale to carefully consider whether the EPA may apply to their operations even where there is no real or potential adverse impact on the natural environment.

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Highlights of the 2012 Federal Budget

Thu, 29 Mar 2012 21:05:00 PDT

Finance Minister Jim Flaherty delivered the Harper government’s 2012 budget today, mixing together austerity measures, pension reforms, and the end of the penny. For the energy and resources sectors, there are a number of highlights in the budget, most significantly the setting of limits on the time for environmental review of major projects. The budget speech cited a need to cut through a "complex maze" of rules and “long and unpredictable” approval processes, and stated the government’s commitment to ensure that needed pipeline infrastructure is built to access Asian markets. Accordingly, new rules will limit review processes for pipelines to 18 months. Mining projects will be limited to two years, and all other approvals would be limited to a one year review period. In addition, Flaherty reaffirmed the government’s commitment to “one-project, one-review”, likely limiting the scope of federal review of projects already undergoing a provincial review. Other energy and resources highlights include <ul> <li> Improvements to oil tanker safety, including stronger vessel inspection requirements and improved emergency preparedness ($35.7M)</li> <li> Trade measures to support the energy industry, including continuing to advance recently announced free trade negotiations with Japan and exploring freer trade with other Asian nations</li> <li> Expanding the eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of bioenergy equipment. An expanded Class 43.2, which depreciates at 50% per year, would include such equipment as waste-fuelled space and water heaters, waste-fuelled district energy, and equipment that uses plant residue such as straw to generate electricity and heat</li> <li> $13.5m to the National Energy Board to increase the inspection of oil and gas pipelines</li> <li> Continuing the Aboriginal Skills and Employment Training Strategy, in recognition of the severe labour shortage faced by the energy and resources industries</li> <li> Following concern that some of the opposition to major resources projects is funded by illegitimate charities, the government is dedicating $8m per year to the Canada Revenue Agency to “ensure that charities devote their resources primarily to charitable, rather than political, activities”</li> <li> $47m to the Northern Pipeline Agency, tasked with the development of the Alaska Pipeline</li> <li> Spending $107M to ensure a stable supply of medical isotopes from Atomic Energy of Canada and maintain safe and reliable operations at the Chalk River reactor, and providing $8m per year to fund the licensing function of the Canadian Nuclear Safety Commission</li> <li> $8m to fund the cleanup of low-level radioactive waste in Port Hope and Clarington, Ontario</li> <li> $1m to update mine effluent regulations</li> <li> $50 million over two years to implement the Species at Risk Act.</li> <li> Extending the 15% mineral exploration flow-through tax credit</li> <li> Improving access to offshore seismic resource information</li> <li> Renewal of the Diamond Valuation and Royalty Assessment program</li> <li> Tariff relief, including the elimination of the 5% duty on certain imported oils and electricity</li> <li> The extension of Export Development Canada’s temporary domestic lending powers</li> <li> Phasing out the 10% Atlantic Investment Tax Credit on the oil, gas and mining sectors in Atlantic Canada</li> </ul>   The federal government’s summary of the budget can be found <a href="http://www.budget.gc.ca/2012/rd-dc/brief-bref-2012-eng.pdf">here</a>, and the full budget can be found <a href="http://www.budget.gc.ca/2012/plan/pdf/Plan2012-eng.pdf">here</a>

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Federal Budget - March 29, 2012

Wed, 28 Mar 2012 22:15:00 PDT

Finance Minister Jim Flaherty will deliver the federal government's 2012 budget on Thursday.  The budget is expected to deliver spending cuts in the $4B range and provide for other austerity measures. Following delivery of the budget, we will provide further details of the budget measures affecting energy and resources, the environment, and climate change.

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New Rules Proposed for U.S. Power Plants

Wed, 28 Mar 2012 12:23:00 PDT

The U.S. Environmental Protection Agency proposed on Tuesday a rule to cut carbon dioxide emissions from power plants. The <a href="http://epa.gov/carbonpollutionstandard/actions.html">EPA Proposal</a> will effectively require any new coal-fired plants to incorporate carbon capture and storage (“CCS”) equipment. The proposal does not affect currently operating plants, or plants that already have permits and begin construction within 12 months. A related <a href="http://yosemite.epa.gov/opa/admpress.nsf/79c090e81f0578738525781f0043619b/9b4e8033d7e641d9852579ce005ae957!OpenDocument">EPA News Release</a> states that the proposed rule reflects “the ongoing trend in the power sector to build cleaner plants that take advantage of American-made technologies.”   The EPA also claims that “the power plants that are currently projected to be built going forward” would already be compliant with the standard set by the proposal, and therefore there would be no additional costs of industry compliance. Once the proposal has been published in the Federal Register, the EPA will commence a 60 day public comment period.   Laura Easton, Student-at-Law

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Federal and Nova Scotia Governments Work Towards Equivalency Agreement

Thu, 22 Mar 2012 09:08:00 PDT

As we <a href="http://www.davis.ca/en/entry/climate-change-law-practice-group/federal-government-may-phase-out-coal-fired-generation-impose-cap-and-trade-on-existing-plants/">previously reported</a>, the federal government intends to enact regulations to phase out coal fired generation in Canada. These regulations will require both new coal-fired power plants, and any existing plants reaching their 40-year lifespan, to be fitted with carbon capture and storage equipment. Minister of Environment Peter Kent <a href="http://www.ec.gc.ca/default.asp?lang=En&n=714D9AAE-1&news=C57FE6E9-8B0D-487E-8B31-58B3FE776DBC">has now announced</a> that the federal government and the government of Nova Scotia are working towards an equivalency agreement which would allow the Province to make its own rules to meet national targets. Nova Scotia has already mandated a reduction of 25 per cent in greenhouse gas emissions in the electricity sector by 2020. The agreement with the federal government would require new targets extending to 2030 to match reductions that would be required under the proposed federal regulations. The Nova Scotia equivalency plan is to be finalized this summer, after the release of the federal regulations. The equivalency plan will allow Nova Scotia to meet targets by giving it the flexibility to focus its efforts on renewable energy projects instead of the individual regulation of each coal-fired power plant. The plan is anticipated to save the province hundreds of millions of dollars which would have been associated with permanently closing two peaking coal-fired plants. Laura Easton, Student at Law

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FIT review results to be announced next week: Minister Bentley

Tue, 13 Mar 2012 12:33:00 PDT

Ontario Energy Minister Chris Bentley told a crowd of electricity interest stakeholders that he would be making an announcement regarding the results of the FIT review process next week.  Minister Bentley was the keynote speaker at an event hosted by the Toronto Board of Trade.  In his address, he emphasized that the Ontario government is committed to long-term planning and cost-effective investment in Ontario's energy infrastructure.  He cited the transition away from coal-fired generation, the planned refurbishment of the reactors at Darlington, and the Green Energy Act and FIT program as examples of the government's approach. Minister Bentley opened his remarks by noting that he had been asked if he would be making any "ground breaking" announcements.  When he later indicated that he would be talking about the FIT review next week, he quipped "there's your news." Stay tuned for more details next week.

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Nortel's CCAA proceedings stay Ministry of Environment clean-up obligations

Fri, 09 Mar 2012 16:46:00 PST

Since Nortel Networks Corporation, and a number of related companies (together, “Nortel”), initially filed under the Companies’ Creditors Arrangement Act (CCAA) over two years ago, the Ontario Ministry of the Environment (the “MOE”) has sought to hold Nortel responsible for environmental contamination remaining on properties it once owned. Specifically, the MOE has issued a remediation and prepared several other draft remediation orders (together, the “MOE Orders”). Nortel estimated that completing the work required by the orders would cost approximately eighteen million dollars. Nortel has long maintained that such environmental clean up orders should not be prioritized ahead of obligations set out in their CCAA plan of arrangement. Today, the Ontario Superior Court of Justice released its reasons in a number of motions relating to these environmental matters, brought together before Justice Morawetz.   Nortel sought a number of declarations and orders, as follows: <ol> <li> 1. authorization and direction that it cease performing any remediation at or in relation to the sites named in the MOE Orders (the “Sites”);</li> <li> 2. a declaration that any claims in relation to remediation requirements by the MOE or any other person against Nortel or their current or former directors or officers in relation to the Sites be subject to resolution and determination in accordance with the terms of the Amended and Restated Claims Procedure Order and the Claims Resolution Order already authorized by the Court;</li> <li> 3. an order repudiating or disclaiming any contractual obligations to carry out remediation requirements on the sites;</li> <li> 4. an order declaring that the relief sought by the MOE Orders is financial and monetary in nature and that the MOE Orders are stayed by the general stay of proceedings already ordered by the Court at the time of the CCAA filing;</li> <li> 5. a declaration that related proceedings before the Environmental Review Tribunal in relation to the MOE Orders be stayed; and</li> <li> 6. advice and direction with respect to certain contaminated lands still owned by Nortel.</li> </ol>   The Court’s decision turned heavily on whether the obligations set out by the MOE Orders and under the Environmental Protection Act can be characterized as financial obligations or as performance or regulatory obligations. Nortel noted that the CCAA already provides for the preferred treatment of certain environmental liabilities. It argued that in light of this, the MOE Orders constitute an effort to use measures outside the CCAA to privilege the MOE’s financial claims, which are more properly dealt with exclusively within the CCAA framework. For its part, the MOE argued that the CCAA provisions dealing with environmental liabilities only address claims where the MOE is acting as a creditor and do not address environmental liabilities generally. Further, it argued, the obligations set out in the MOE Orders are performance obligations which are not impacted by the CCAA proceedings and that allowing Nortel to evade these responsibilities amounts to an unfair shifting of expense from Nortel’s creditors, who chose to do business with the company, to the taxpayers of Ontario. The Court notes that it is “necessary to emphasize: insolvency statues such as the CCAA and the BIA do not mesh very well with environmental legislation. The environmental legislation and its regulatory framework functions more effectively when insolvency is not present.” However, the Court determined that it must find in favour of Nortel, concluding that the realities of insolvency mean the MOE Orders can amount to nothing but an attempt to enforce a financial obligation: “There is no going forward business. Nortel is in a position where it has no real option but to pay money to comply with any environmental issue. In my view, if the MOE moves from draft orders to issued orders, the result is clear. The MOE would be, in reality, enforcing a payment obligation, which step is prohibited by the Stay.”   Recognizing the challenges this conclusion leaves in dealing with the realities of environmental remediation costs, the Court notes that the CCAA does make some provisions for recognizing claims for clean-up costs of property still owned by a debtor company. In this case, however, Nortel had sold its interest in most of the properties subject to the MOE Orders prior to filing under the CCAA. Alternatively, the Court suggests that the MOE could file a claim as an unsecured creditor.

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Oil Sands Producers Form Alliance to Accelerate Environmental Innovation

Thu, 01 Mar 2012 11:46:00 PST

Twelve of Alberta's major oil sands producers have formed the <a href="http://www.cosia.ca/">Canadian Oil Sands Innovation Alliance</a> to spur innovation by sharing their research and development in environmental areas. The members of the alliance, while stating that they will remain competitors in all respects, will share information with one another regarding such matters as tailings management, water and wastewater technology, land reclamation and greenhouse gas mitigation, with a view to improving environmental performance in the oilsands. The initial members of the alliance, representing more than 80% of oilsands production in Canada, are: BP Canada Energy Company Canadian Natural Resources Limited Cenovus Energy Inc. ConocoPhillips Canada Resources Corp. Devon Canada Corporation Imperial Oil Nexen Inc. Shell Canada Energy Statoil Canada Ltd. Suncor Energy Inc. Teck Resources Limited Total E&P Canada Ltd. The alliance will also engage  research agencies, service companies, and other expertise in the oil sands.

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Drummond Report considers Ontario's electricity sector

Wed, 22 Feb 2012 07:35:00 PST

As part of the much-anticipated Drummond Report last week, the Ontario government has been given some specific guidance on how it can manage the electricity sector as part of its efforts to reduce the provincial deficit and control government finances in the long term.  As discussed below, the Drummond Report makes a number of recommendations aimed at rationalizing government support for the sector, reducing stranded debt, controlling price increases, and managing publicly-owned Hydro One and OPG.  To implement the recommendations, the government will have to plan for the long term, look for efficiencies across the sector, and make some politically difficult choices regarding high profile policies (including the FIT program, the 10% refund on electricity bills, and time-of-use pricing). <ol> <li> Using tax dollars to support for the electricity sector</li> </ol> Drummond criticizes the Ontario Clean Energy Benefit ("OCEB") for distorting the true cost of electricity and discouraging conservation and calls for it to be eliminated as quickly as possible.  The OCEB provides a 10 per cent rebate on electricity bills for residential, farm and small business customers.  The government introduced the OCEB on January 1, 2011 as a means of offsetting some of the rate impact that is inevitable as Ontario shifts to a cleaner mix of generation.  The program will cost Ontario $1.1 billion in fiscal 2011-2012 and is, in Drummond's view, an unsustainable and very inefficient use of tax dollars. He acknowledges that the government intends to end the OCEB at the end of 2015 at the same time that it eliminates the Debt Retirement Charge from electricity bills.  However, he questions whether the DRC will in fact be retired then (with some estimates pointing to 2018 as a more realistic retirement date for the DRC).  Even taking into account the possibility that the simultaneous retirement of the DRC and OCEB could help avoid a jarring change in rates, he recommends phasing out the OCEB as quickly as possible. While Drummond singled out the OCEB for specific criticism, he also called for a rational review of the effectiveness of several other government support programs for the electricity sector, including: <ul> <li> the Ontario Energy and Property Tax Credit;</li> <li> the Ontario Emergency Energy Fund;</li> <li> the Northern Ontario Energy Credit and</li> <li> the Northern Industrial Electricity Rate Program</li> </ul> Drummond recommends that the government assess these programs on the basis of value for money and achievement of specific policy goals. <ol> <li> Servicing the stranded debt and long-term liabilities</li> </ol> Drummond emphasizes the need to improve the financial performance of OPG and Hydro One as a means of paying down stranded debt.  Following the restructuring of the electricity sector in 1999, $20.9 billion of Ontario Hydro's debt could not be support by the assets of the restructured entities.  Of this stranded debt, an original estimate of $7.8 billion is to be paid by consumers through the Debt Retirement Charge, which is added to all electricity bills.  The remaining $13.1 billion is to be paid down using two revenue streams: (1) payments-in-lieu-of-taxes (PILs) collected from Hydro One, OPG and municipally-owned LDCs; and (2) the portion of Hydro One and OPG profits that exceeds the province's costs of financing these companies.  By optimizing the operations of Hydro One and OPG (as specifically recommended below), the province may be able to eliminate the stranded debt more quickly. <ol> <li> Controlling the price of electricity</li> </ol> The government has forecasted a 46 per cent increase in electricity prices over the five-year period from 2010 to 2015.  Drummond identifies a number of measures that could be taken to slow the pace of rate increases. First, he calls on the province to complete the Integrated Power Supply Plan ("IPSP") process.  The IPSP filed by the OPA in 2007 was never approved by the OEB as then-Minister of Energy George Smitherman suspended the IPSP process to make way for the Green Energy Act.  The government has rekindled the planning process with its recent Long Term Energy Plan.  Drummond recommends that the LTEP be transformed into a full 20-year IPSP to give the electricity sector a long-term road map. Like many before him, Drummond believes that there is an opportunity to improve the efficiency of the distribution market by consolidating some of the 80 existing local distribution companies (LDC).  Currently, the province imposes a 33% transfer tax on the sale of electricity utilities to the private sector to help compensate the province for lost PILs that could be used to pay down stranded debt.  For a consolidation effort to be a success, Drummond recommends that province drop the transfer tax if it can negotiate the return to provincial coffers of any federal income taxes that would be collected from private owners of consolidated LDCs. Drummond recognizes that the Green Energy Act is contributing to rising electricity prices but that the OPA is currently reviewing the Feed-In Tariff program.  As part of that review, Drummond hopes that the OPA lowers FIT prices and builds in a price regression formula (as has been done in Germany).  He also recommends that the OPA make "better use of the 'off-ramps; built into existing FIT contracts", which seems to be a suggestion that the OPA consider terminating some of the contracts that have been issued but have yet to obtain a notice to proceed (or waiver of pre-NTP termination rights). Going forward, Drummond would like to see all large-scale generation projects procured through a competitive request for proposal process.  In practice, implementing this recommendation could mean implementing a cap on the size of renewable projects to be procured under the FIT program. Drummond also recommends looking for efficiencies in the various agencies that manage the electricity sector (i.e., the OPA, OEB, IESO and possible OEFC), including by potentially sharing some back-office services. Drummond has two recommendations for improving pricing signals in the market.  First, he recommends increasing the ratio peak to off-peak pricing under the Time of Use pricing regime, which would amplify the incentive to shift demand to off-peak times.  Second, he recommend baking transmission costs (e.g., congestion charges) into the wholesale price of electricity, one effect of which could be to make electricity cheaper for some loads located close to generating stations. Drummond also calls for a "proactive electricity education strategy."  The report does not offer specific support for this recommendation.  Presumably it is intended to promote more rational and informed public discourse about the value and costs of the electricity system.  <ol> <li> Managing Hydro One and OPG</li> </ol> Hydro One and OPG control very substantial shares of Ontario's electricity market.  Hydro One owns and operates most of the province's transmission network and significant portions of its distribution network.  OPG owns and operates large scale hydro, nuclear and coal generating facilities.  The government can therefore exert substantial influence on the industry through these two entities in two ways. First, the government, acting through the Ontario Energy Board, has the ability to regulate Hydro One and OPG's rates.  Drummond notes that the province has intervened in regulatory proceedings to restrain rate increases that might otherwise be approved by the OEB.  These interventions have been designed to mitigate "rate shock", but often have the effect of deferring, not eliminating, rate increases.  Drummond therefore recommends that the province refrain from intervening in such proceedings unless it transparently communicates a clear, legitimate policy objective for doing so. Second, the provincial government is the sole shareholder of Hydro One and OPG and can therefore exercise direct control over the management of those companies.  Drummond calls on the province to exercise that control to cause Hydro One and OPG to pursue operational efficiencies that would reduce electricity costs.  As part of such efforts, he recommends that they seek out strategic partnerships with the private sector that would allow Hydro One and OPG to share some of the construction and financing costs that should be invested to boost revenue. More generally, the report recommends capitalizing on the strength of Ontario's electricity sector (Hydro One and OPG in particular) by seeking opportunities to export domestic goods and services. See <a href="http://www.fin.gov.on.ca/en/reformcommission/chapters/ch12.html#ch12-c">Chapter 12</a> and <a href="http://www.fin.gov.on.ca/en/reformcommission/chapters/ch17.html#ch17-a">Chapter 17</a> of the Drummond Report for additional detail.

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Expert Panel Endorses Construction of Two Alberta Transmission Lines

Wed, 15 Feb 2012 15:44:00 PST

As we <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/redford-selected-as-new-premier-will-send-transmission-projects-back-to-the-drawing-board/">previously</a> <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/alberta-stops-hearings-into-transmission-lines/">reported</a>, upon becoming Premier last fall, Alison Redford promised that certain proposed  transmission projects which had been proposed as Critical Transmission Infrastructure would be "sent back to the drawing board."  The expert committee struck to examine the AltaLink proposed West Alberta Transmission Line, and the ATCO proposed East Alberta Transmission Line reported back to the government on Tuesday.  In short, the panel recommended that both projects proceed as quickly as possible. The panel's findings were as follows: <ul> <li> The Alberta Electric System Operator's economic, load and generation forecasts used to forecast the need for the transmission were reasonable.</li> <li> The AESO’s recommendation to proceed with the development of two 500 kV transmission lines was reasonable</li> <li> The AESO’s decision to use high voltage direct current technology was reasonable.</li> <li> The government should proceed with the development of the two 500 kV HVDC transmission lines as soon as possible</li> <li> The Electric Utilities Act should be amended to grant the Alberta Utilities Commission (not cabinet) the authority to designate Critical Transmission Infrastructure</li> <li> The AUC should consider options that will mitigate the impact of the cost of new transmission infrastructure to consumers.</li> <li> competitive procurement process should be used for future Critical Transmission Infrastructure</li> </ul> Energy Minister Ted Morton has stated that he intends to respond to the report by the end of the month. A copy of the full report can be found <a href="http://www.energy.alberta.ca/Electricity/pdfs/CTRCPoweringOurEconomy.pdf">here</a>

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2012 Alberta Throne Speech Highlights

Tue, 07 Feb 2012 16:03:00 PST

The first sitting of the Alberta legislature for 2012 opened today with Lieutenant Governor Donald Ethell delivering the <a href="http://alberta.ca/thronespeech2012.cfm">speech from the throne</a>.  With the provincial budget coming on Thursday and an election call expected in the spring, this speech was being closely watched for clues as to the government's direction under the new Premier going into its first election.  The speech made two specific promises on energy related matters. First, the government stated that it would support the development of a "Canadian Energy Strategy", which would include support for the development of new markets for Alberta energy, support for a better understanding of Alberta's energy products, and expansion of infrastructure necessary to get Alberta products to markets.  While the speech did not refer specifically to any particular infrastructure, the Premier has in the past expressed a <a href="http://www2.canada.com/calgaryherald/iphone/news/latest/story.html?id=6019880">strong desire</a> to see both the Keystone XL and Northern Gateway pipelines built.  In particular , she has referred to Northern Gateway as being of national importance and critical to Canada's future economic strength.  The desire to lead in the development of a Canadian Energy Strategy is clearly very important to the Redford government.  In addition to the references to the strategy in the throne speech, Energy Minister Ted Morton <a href="http://business.financialpost.com/2012/02/07/alberta-promoting-canada-wide-energy-plan/?__lsa=5d124358">was in Toronto this week</a> to seek support for the development of such a Canada-wide strategy.   Second, the government pledged its continued cooperation with Ottawa to defend Alberta's energy sector, and its continued support for the joint <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/announcement-of-joint-canada-alberta-oil-sands-monitoring-plan/">Ottawa-Alberta oilsands monitoring program.</a> More specifics on Alberta's energy strategy are expected in Thursday's budget.

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BC LNG Strategy Includes Reversal of Goal of Electricity Self-Sufficiency

Tue, 07 Feb 2012 12:05:00 PST

As discussed <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/british-columbia-announces-new-natural-gas-and-lng-strategies/">here</a>, the B.C. government's new <a href="http://www.gov.bc.ca/ener/popt/down/natural_gas_strategy.pdf">Natural Gas strategy </a>and <a href="http://www.gov.bc.ca/ener/popt/down/liquefied_natural_gas_strategy.pdf">LNG strategy </a>released last week set out significant new details on the province's plans to develop its natural gas resources and promote the LNG export industry. One key point of the strategies is the steps the government will undertake to ensure the availability of sufficient, clean, renewable electricity. British Columbia's <a href="http://www.energyplan.gov.bc.ca/">2007 Energy Plan </a>had set a goal of self-sufficiency for B.C. Hydro by 2016. The plan specifically mandated that B.C. Hydro plan for sufficient generation within British Columbia to ensure self-sufficiency even in years when inflow to reservoirs was extremely low, and that Hydro acquire an additional 3,000 GWh per year of "insurance" generation by 2020. The LNG strategy reverses the 2007 Energy Plan on these points. The LNG strategy notes that the 2007 Energy Plan was written at a time when electricity prices were very high, and that the goals do not make sense in a market where natural gas is relatively cheap and generation (particularly subsidized renewables) in the United States are overbuilt. Accordingly, B.C. Hydro will be required to plan based on average inflow to reservoirs, and will not be required to acquire the additional generation. Any shortfall in electricity will be made up by imports. The LNG strategy estimates that electricity rates will be reduced by approximately 8% by 2016 and 20% by 2020 as a result of the changes to the Energy Plan. The biggest losers in the strategy may be independent power producers in B.C. The 2007 Energy Plan was responsible, in part for the surge in IPP projects over the last several years, and abandoning the requirement for self-sufficiency may reverse or end that trend.

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British Columbia Announces new Natural Gas and LNG Strategies

Fri, 03 Feb 2012 14:39:00 PST

The British Columbia government announced two new strategies today:  the <a href="http://www.gov.bc.ca/ener/popt/down/natural_gas_strategy.pdf">Natural Gas strategy</a>, which has the stated goal of helping British Columbia become a world leader in secure and stable natural gas investment, and the <a href="http://www.gov.bc.ca/ener/popt/down/liquefied_natural_gas_strategy.pdf">LNG Strategy</a>, which is sets out British Columbia's goal of becoming a world leader in LNG exports. Both strategies are reasonably straighforward and contain a number of high-level policy statements about British Columbia's strategies for natural gas and LNG.  Neither strategy contains significant detail about how those plans are to be achieved. The Natural Gas strategy contains significant detail about the current state of natural gas reserves and production in B.C.  The strategy notes that B.C. is Canada's second-largest producer of natural gas (after Alberta), producing approximately 1.1 TCF of gas annually.  41% of this gas is exported to the United States, 43% is transported to the remainder of Canada, and 16% is consumed within British Columbia.  Total recoverable reserves are currently estimated at 100 TCF (which compares with a cumulative 22.5 TCF produced in the province over the last 55 years). The strategy sets out the 13 key actions that the government intends to undertake in regards to natural gas.  These include: <ul> <li> The government will work to develop new export markets for natural gas and LNG, primarily in China and Japan</li> <li> The government will coordinate permitting and approvals to ensure competitiveness in the global LNG market.  The strategy envisions three LNG facilities, representing a total investment of $18 billion, in place by 2020.</li> <li> The government will promote natural gas as a transportation fuel</li> <li> The government will continue to identify and complete resource assessments in key production areas, inclduing identifying subsurface water resources</li> <li> The government will monitor its royalty system to ensure the province remains competitive.  The strategy notes that in the last fiscal year, natural gas royalty revenue totalled $1.35 billion, approximately 4% of provincial revenue.</li> <li> The government will encourage infrastructure (roads and pipeline) development to support extraction and LNG development</li> <li> The government will amend the Petroleum and Natural Gas Act to improve administration for Crown natural gas and petroleum leases and licenses</li> <li> The government will ensure engagement with communities and First Nations</li> <li> The government will continue to promote natural gas as part of the solution to climate change, including promotion of the use of carbon capture and storage and promotion of the reduction of flaring</li> <li> The government will continue to promote the B.C. Jobs Pna.</li> <li> The government will invest in critical infrastructure ensure the availability of clean and renewable electricity to power future LNG facilities (having regard to the need to keep electricity rates affordable). </li> </ul> The LNG strategy goes into significant detail on the final point - the availability of electricity.  This is the element of the two strategies that is the most significant departure from existing government policy, and it is <a href="http://www.davis.ca/en/entry/environmental-energy-and-resources-law/bc-lng-strategy-includes-reversal-of-goal-of-self-sufficiency/">discussed in more detail here</a>. So far, reaction to the two new strategies has been very positive. The provincial NDP has <a href="http://bcndpcaucus.ca/en/liberals_show_they_haven%E2%80%99t_learned_lessons_from_failed_energy_policies_says_ndp">expressed support </a>for the strategies in principle, though it has some questions about the effect of the change to electricity policy on Hydro's ratepayers.

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Ministers Announce Joint Canada-Alberta Oil Sands Monitoring Plan

Fri, 03 Feb 2012 13:43:00 PST

Federal Environment Minister Peter Kent and Alberta Environment and Water Minister Diane McQueen jointly announced today a new joint plan to improve environmental monitoring of the oil sands. The three year plan for enhanceing air, water and biodiversity monitoring involves increased frequency of sampling, sampling for more contaminants, and more sampling locations.  Monitoring methodologies will also be improved.  All information will be made available to the public.  The monitoring program will also be subject to peer review.  The program, which will be paid for by industry, will cost about $50 million. The Alberta and Federal governments have also committed to working cooperatively over the next three years to implement a world class monitoring program for all aspects of the environment in the oil sands region.  For further details on the implementation of the monitoring program, see the Province of Alberta's <a href="http://alberta.ca/acn/201202/318784421F585-DCE7-D3CC-8693ABB32D6E1ABA.html">news release </a>and Environment Canada's <a href="http://www.ec.gc.ca/default.asp?lang=En&n=714D9AAE-1&news=BC73B2E3-F93C-4294-A6BF-22C9DC689F7C">news release</a>.

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CAPP Issues Voluntary Fracking Operating Practices

Wed, 01 Feb 2012 14:59:00 PST

The <a href="http://www.capp.ca/Pages/default.aspx">Canadian Association of Petroleum Producers</a>, an industry group representing upstream oil and natural gas producers in Canada, announced on Monday that it had issued <a href="http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/operating-practices-for-hydraulic-fracturing.aspx">six voluntary operating practices </a>for its members conducting fracking operations. The aim of the guidelines, according to CAPP, is to ensure protection of water resources and to improve transparency.  The development of operating practices <a href="http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/GuidingPrinciplesforHydraulicFracturing.aspx">arises out of a previous initiative by CAPP </a>to develop guiding principles for fracking. Operating practices are set out which require: <ul> <li> the disclosure of the components of fracking fluids</li> <li> the development of risk management plans for fracking fluid additives</li> <li> the conduct of baseline water monitoring, including domestic well sampling and participating in regional groundwater monitoring initiatives</li> <li> processes for wellbore construction which will ensure the integrity of wellbores, and the development of contingency plans in the event of a loss of wellbore integrity</li> <li> the assessment, measurement and mon and monitoring of surface water sources</li> <li> the identification, evaluation and mitigation of risks associated with the transport, handling, storage and disposal of fracking fluids</li> </ul> Full copies of each of the operating practices can be found <a href="http://www.capp.ca/canadaIndustry/naturalGas/ShaleGas/Pages/Default.aspx#operating">here</a>.   CAPP's move comes at the same time as the<a href="http://www.davis.ca/en/blog/Environmental-Energy-and-Resources-Law/2011/09/30/Federal-environmental-panels-to-investigate-fracking"> federal expert panel and the Environment Canada panel</a> initiated by Environment Minister Peter Kent continue their work investigating the environmental impact of fracking technology continue their respctive work.

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Natural Resources Minister Oliver Promises to Streamline Approvals

Wed, 25 Jan 2012 16:01:00 PST

Federal Natural Resources Joe Oliver, in a <a href="http://www.theglobeandmail.com/report-on-business/changes-to-speed-regulatory-reviews-coming-in-months-oliver/article2314829/">speech in Calgary on Wednesday</a>, committed to reforming and streamlining the federal environmental approvals process in the coming months.  He expressed a concern that the process was not as "effective, efficient and expeditious as it could be."  He further referred to the regulatory process as "unpredictable, often increasingly lengthy and needlessly complex". Read it on Global News: Global News | Federal energy minister: new regulatory process to be introduced within a year Minister Oliver had <a href="http://business.financialpost.com/2012/01/09/joe-olivers-open-letter-the-regulatory-system-is-broken/">previously stated </a>that the system was "broken" and has promised to implement “definitive timelines from start to finish on the regulatory process".  Minister Oliver is the latest federal Natural Resources minister to promise to streamline energy and natural resources approvals processes.  Previously: <ul> <li> in 2005, Liberal Natural Resources Minister John Efford <a href="http://www.energybc.ca/Susan_Eaton.pdf">promised to streamline</a> Canada's "cumbersome" regulatory approval process, and spoke about oil and gas projects across Canada caught in the "quagmire" of regulatory approvals</li> <li> in 2005, <a href="http://www.canada.com/story_print.html?id=43ba8184-4635-46a0-92cd-40f55b152777&sponsor=">news reports indicated </a>that Prime Minister Martin had commenced discussions with the United States on speeding up the regulatory review process for oilsands projects, and encouraged decision-makers to speed up the regulatory review process with a one-stop shop for project proposals</li> <li> in 2006, Conservative Natural Resources Minister Gary Lunn <a href="http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=2266088&Language=E&Mode=1&Parl=39&Ses=1">talked about the need</a> for a "strong regulatory framework" in the context of LNG approvals, in order to eliminate duplication without compromising integrity in order to provide the security that industry needs</li> <li> in 2009, Conservative Natural Resources Minister Lisa Raitt <a href="http://www2.canada.com/story.html?id=1614003">spoke about her plan </a>to cut pipeline red tape through sweeping legislative changes to make the approvals system more transparent and efficient, in order that pipelines could be built quickly enough to enable Canadian energy to get to markets</li> <li> in 2010, Conservative Natural Resources Minister Christian Paradis <a href="http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=4358769&Language=E&Mode=1&Parl=40&Ses=3">spoke to a Commons committee </a>about the increasing complexity of regulatory approvals and environmental assessments, the need to give certainty to industry and the need to optimize and streamline the approval process</li> </ul>

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Manitoba Public Utilities Board Denies Manitoba Hydro Application for Rate Increases

Thu, 19 Jan 2012 11:28:00 PST

On January 17, the Manitoba Public Utilities Board issued its Order no. 5/12 respecting Manitoba Hydro's 2010-2012 general rate application. Hydro had applied for an average rate increase of 2.9% effective April 1, 2010, and a further rate increase of 2.9% effective April 1, 2011. The Manitoba PUB denied the application, and instead granted an average rate increase of 1.9% for 2010 and 2.0% for 2011. The Order is notable because the Board set out, in great detail, a number of areas in which Hydro had failed to make its case for the required increase. Some of the more notable findings of the Board included: <ul> <li> The Board expressed displeasure that Hydro had not filed proposed export contracts with the Board for review</li> <li> The Board expressed unease about Hydro planning for the construction of significant new generation and transmission ($20 billion worth) before it is needed by Manitoba ratepayers, in the expectation that the related costs can be recoverd through export sales. The Board was particularly concerned that export revenues would not cover the cost of that new construction, requiring Manitoba ratepayers to subsidize those export contracts</li> <li> The Board was concerned that the rate increase requested by Hydro (2.9%) would not be sufficient for the required subsidization, leading to further significant rate increases in future years</li> <li> The Board pointed to a failure of Hydro to initiate a regulatory review of its business plan, and in particular its capital plans. The Board noted that Hydro was continuing to spend $1-2 million per day on its preferred development plan without such a review having taken place. The Board specifically stated that it would not support a rate increase to recover future expenses related to untested and unapproved capital plans</li> <li> The Board expressed its concern with Hydro's lack of a defined approach to updating the rate of escalation for major project costs (particularly where a gap between those costs and revenues from export contracts is at ratepayer risk)</li> <li> The board noted that Hydro had not provided a risk analysis of its operational and business risks (long-requested by the Board)</li> <li> The Board expressed concern that Hydro's cost containment measures are too modest and too short-lived (noting in particular that staffing levels have "ballooned" since Hydro's last expansion phase in the 1990s</li> <li> The Board expressed concern that Hydro did not receive any premium or recognition in export markets arising from its generation of hydroelectricity (as compared to fossil sources)</li> <li> The Board noted that Hydro was not accounting for what it considered a worst-case export market scenario, due to a number of factors including increasing project costs, historically low natural gas prices, the high Canadian dollar, lack of carbon pricing and U.S. wind subsidies</li> </ul> The Board's decision can be found <a href="http://www.pub.gov.mb.ca/pdf/12hydro/5-12.pdf">here</a>.

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