On August 28, 2019, Bill C-69 was proclaimed into force, simultaneously enacting the Canadian Energy Regulator Act (CERA) and the Impact Assessment Act (IAA)¹ and repealing the National Energy Board Act (NEB Act) and the Canadian Environmental Assessment Act, 2012 (CEAA 2012). Due to this legislative changeover, the National Energy Board (NEB) has been replaced with a new regulatory body, the Canadian Energy Regulator (CER); and the Canadian Environmental Assessment Agency (CEA Agency) has been replaced with the Impact Assessment Agency of Canada (IA Agency).

Bill C-69 introduces a number of important changes to the regulatory regime for major projects and environmental assessments in Canada.

An overview of the regulatory changes enacted by Bill C-69

Revised governance and adjudicative structure

Previously, the NEB administered its statutory jurisdiction as an integrated regulatory body. No longer. The CERA implements an internal reorganization, separating out the CER’s administrative and adjudicative functions. Strategic administrative and policy considerations will be managed by a Board of Directors and a CEO; adjudicative functions will fall into the purview of a group of independent commissioners (the Commission).

In addition to these two bodies, the CERA contemplates that the Commission and IA Agency will, on occasion, form a federal review panel to jointly conduct integrated impact assessments and reviews of certain designated projects that are subject to both the CERA and the IAA.²

This change, though new in the CERA, is not unfamiliar. Prior to 2012, some project reviews were similarly conducted by federal joint review panels under the NEB Act and the Canadian Environmental Assessment Act, the predecessor statute to the CEAA 2012. After 2012, the NEB conducted the environmental assessments and project reviews for designated projects within its jurisdiction and the CEA Agency was responsible for those energy-related projects that the NEB did not have the jurisdiction to consider. Thus, while the decision-making apparatus set out in the CERA and the IAA represents a change from Canada’s most recent approach to environmental and major project regulation, the involvement of a multi-agency review panel is, in some respects, no more than a reversion to a process similar to that followed prior to 2012.

Jurisdiction of the CER

Under the CERA, the CER has retained, to varying degrees, jurisdiction over the “energy” industry in Canada, including a list of projects and associated matters similar to that previously overseen by the NEB, such as the environmental and economic regulation of pipelines and transmission infrastructure. Offshore renewable energy projects are a new addition to this list, and likely include projects such as offshore wind and tidal facilities. In its adjudicative role, the CERA tasks the Commission with reviewing applications for the development, construction and operation of many of these projects, as well as their ongoing “cradle-to-grave” regulation, culminating in their eventual abandonment.³ Notwithstanding that the CER has jurisdiction over a broad range of projects and related issues, the remainder of this article focuses primarily on matters related to the oil and gas industry, and, in particular, the more complicated circumstances that engage both the CERA and the IAA.

Much of the media coverage of Bill C-69 focused on the regulatory review of oil and gas infrastructure projects and facilities. Regarding applications for new pipelines and associated facilities, the Commission will, unless otherwise directed, assess applications within its jurisdiction, considering a range of environmental and, broadly speaking, socio-economic factors. Some of the enumerated factors that fall within this list, like environmental impact, safety, and concern for the rights and interests of Indigenous peoples of Canada were previously considered implicitly by the NEB. Other factors are new, including the impact of a project on the intersection of sex and gender identity factors and the extent to which the project will hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and commitments in respect of climate change.

The economic regulation of pipelines and related infrastructure is an issue that has historically received significantly less media and public scrutiny. Nevertheless, it is an important element of industry regulation and will continue to form an integral part of the CER’s regulatory mandate. And in light of the pipeline capacity constraints currently affecting the Canadian energy industry, economic regulation is a matter of increasing importance. Perhaps reflecting the wisdom lurking beneath the cliché “if it ain’t broke, don’t fix it,” the CERA continues the traffic, toll, and tariff provisions from the NEB Act, leaving them relatively unchanged. As a result, we anticipate that the CER will adopt an approach to economic regulation similar to that of its predecessor.

Designated projects and the IA Agency

The IAA applies to a broad range of projects and physical activities. In this respect, there is some crossover with the CERA. The Physical Activities Regulations (the Regulations) to the IAA designates certain projects (designated projects) which will require an impact assessment as part of their regulatory review. A number of pipeline and other energy-related projects are included on this list and must therefore undergo integrated impact assessments and reviews conducted by a review panel. These include:

• pipelines in national parks and protected areas;
• interprovincial or international pipelines that require more than 75 km of new right of way; and
• certain offshore projects and operations related to offshore pipelines.

In addition to projects that are subject to the jurisdiction of both the CER and the IA Agency, the following energy-related projects must undergo impact assessments administered by the IA Agency:

• new fossil-fuel power generating facilities that generate more than 200 MW;
• new in situ oil sands mines that have bitumen production capacities of 2,000 cubic metres per day and are not subject to provincial legislation limiting the amount of greenhouse gas emissions produced by oil sands sites in the province, as well as the expansion of certain existing mines; and
• certain refining, processing and storage facilities, as well as the expansion of existing designated facilities.

For both categories of designated project, proponents should be aware of the expanded criteria that will apply to any impact assessment conducted by a review panel or the IA Agency, including the newly framed public interest determination. As is the case as between the CERA and the NEB Act, the IAA has a far broader list of factors than was formerly included in the CEAA 2012, which focused primarily on environmental effects. In this regard, the explicit reference to “impact” in the title of the IAA is telling: the IAA requires a consideration of the overall societal impact that a project may have, either as a direct or consequential result of its construction and operation and including environmental, biophysical, and socio-economic factors.

New formulation of the public interest determination

Under the NEB Act, the Board had to consider various economic and market related factors in its review of pipeline applications, as well as any public interest it thought may be affected by the pipeline.⁴ The CEAA 2012 built on this inquiry, but its version of the public interest assessment provided little additional guidance, focusing primarily on concerns related to the significant adverse effects that a designated project might have on the environment.

While the residual public interest consideration that applies to the Commission’s review of pipeline applications under the CERA remains open-ended, the public interest inquiry under the IAA has been completely reformulated. For designated projects, the decision-maker will no longer have to simply determine whether any significant adverse effects identified in the environmental review can be justified in the circumstances. Under the CEAA 2012 and NEB Act, this was a discretionary decision that relied primarily on a weighing of the socio-economic and environmental benefits and burdens associated with a designated project. As the Board explained in its final major facilities report and recommendation:

Weighing the public interest, as required by the NEB Act, is not a rigid or mechanical task. It is a complex, flexible, and multifaceted inquiry that requires the Board to conduct a thorough and scientific examination of evidence relating to economic, environmental, and social factors; to consider the impacts of [a proposed project] on Indigenous rights; to weigh and balance the overall benefits and burdens of [a proposed project]; and to draw conclusions. This consideration of benefits and burdens also informs the Board’s recommendation under the CEAA 2012 regarding whether any significant adverse environmental effects can be justified in the circumstances. The various factors that the Board considers in [an] inquiry cannot be understood in isolation from one another, or divorced from the specific context and circumstances surrounding [a proposed project].⁵

Though the former Board appears to have adopted a holistic understanding of its duties, the IAA has pushed the scope of assessment and consideration even further, dropping the “significant” from “significant adverse effects” and requiring the appropriate decision-making authority to determine whether the adverse effects identified in the impact assessment and review are in the public interest with regard to the following considerations:

• the extent to which the designated project contributes to sustainability;
• the extent to which the identified adverse effects are significant;
• whether the implementation of mitigation measures may alleviate any concerns arising from the adverse effects of the designated project;
• the impact that the designated project may have on any Indigenous group or their constitutional rights; and
• the extent to which the effects of the designated project hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and its commitments in respect of climate change.⁶

This list of factors appears to preclude the decision-maker from simply weighing the socio-economic and environmental benefits and burdens associated with a designated project. The public interest has now been defined as something different than a “net benefit” and it appears that Parliament is of the view that adverse effects, regardless of magnitude, are no longer justifiable if the project as a whole does not, in some manner, fit within these parameters, regardless of the net economic benefit. Complicating the analysis, however, is the fact that, while these factors are similar to those comprising the underlying impact assessment, the scope of the questions asked at the public interest stage of the inquiry does not extend to account for all of the considerations that informed the initial impact assessment. Until the IA Agency, a review panel, the federal government or a court provides further guidance, the manner in which the various assessments conducted under the CERA and IAA interact will introduce significant uncertainty into the project approval process.

The duty to consult and an increased emphasis on Indigenous interests

References to the Commission’s and IA Agency’s duties and responsibilities to the Indigenous peoples of Canada appear throughout the CERA and the IAA. While we have not put together an exhaustive list of these changes, the following are noteworthy:

• it is now explicitly within the mandate of the Commission and the IA Agency to perform its duties and functions in a manner that “respects the Government of Canada’s commitments with respect to the rights of Indigenous peoples of Canada”;⁷
• in discharging its duties, the Commission and the IA Agency must consider any adverse effects that a project, decision, order or recommendation may have on the Indigenous peoples of Canada;⁸
• the Commission must establish an advisory committee to improve the involvement of Indigenous peoples of Canada in energy infrastructure projects;⁹ and
• when evaluating project applications, the rights, interests and knowledge of Indigenous peoples are now an enumerated consideration for the Commission and the IA Agency.¹⁰

Many of the principles underlying these express statutory requirements are already constitutionalized under s. 35 of the Constitution Act, 1982, and, as a result, already informed the NEB’s and CEA Agency’s administrative practices. Some of the specific requirements, however, are new.

Public participation

The NEB’s previous test for standing, which limited participants to those that were either directly affected by a project or had relevant information or expertise, no longer applies. The language of both the CERA and the IAA disclose a broad and inclusive approach to public participation,¹¹ though it is only the CERA that expressly addresses standing. For pipeline applications, the CERA contemplates an open-ended public right of participation: “Any member of the public may, in a manner specified by the Commission, make representations with respect to an application for a certificate.”¹²

This change has the potential to cause significant delays to the review process; however, it may be that the Commission or review panel simply adopts a procedure similar to that previously employed by the NEB: permitting those whose interests are directly affected to directly intervene while limiting the participation of less directly affected parties to letters of comment.

Timelines for review and the “planning phase”

During the debate surrounding Bill C-69’s development, the federal government frequently stated that an objective of the proposed legislative changes was to improve decision certainty and turnaround times.¹³ One mechanism that may help achieve this goal relates to designated projects under the IAA. Prior to the commencement of an impact assessment, the proponent of a designated project must conduct a planning phase in which it engages with the public and works with the IA Agency and relevant federal authorities to determine what the eventual impact assessment will consider and what information the IA Agency or review panel will require to conduct its assessment. This planning phase is set to take no more than 180 days, but may be extended.¹⁴

Once a review or assessment has commenced under either the CERA or IAA, there are limits on the amount of time the relevant regulatory authority will have to issue its report and recommendation to the Governor-in-Council (the GIC). There are similar time limits that apply to decisions that must be made by the GIC.

Consistent with the NEB Act, proponents of pipelines shorter than 40 km may apply for an exemption from the full review and certification process.¹⁵

Applications for pipelines that are shorter than 40 km or require less than 75 km of new right of way will also, at least procedurally, look similar to the process previously conducted under the NEB Act. Applicants will apply to the Commission, the Commission will issue a report and recommendation to the GIC within 450 days following the receipt of a complete application,¹⁶ and the GIC will make a final decision within 90 days of receiving the report.¹⁷

New interprovincial or international pipeline projects that require 75 km or more of new right of way, however, are designated projects and will be assessed by a review panel. A review panel operating under the CERA and the IAA must issue its report within 300 days of the commencement of the impact assessment and project review, though this time limit may be set for as long as 600 days if the IA Agency believes that more time is required.¹⁸ Once it has received a report prepared by the review panel, the GIC must consider the report and issue a decision within 90 days.¹⁹

For all other designated projects, the IA Agency (or, if necessary, a review panel) must complete its impact assessment within 300 days,²⁰ at which point the Minister must either issue a decision within 30 days or refer the matter to the GIC for further consideration.²¹ As above, however, the initial 300 day limit may be extended to be as long 600 days if the impact assessment is conducted by a review panel.²²

Despite the assurances of the federal government, it is not obvious that the changes and timelines implemented under the new regime will actually improve decision certainty and turnaround times. Indeed, given the addition of new factors for consideration, increased opportunity for public participation, and the discretion of the Minister to extend or suspend the specified timelines, project reviews may, in fact, take longer.

For pipelines, the GIC can no longer disregard a negative recommendation

Under the CERA, the GIC no longer has the ability to exercise its discretion and approve a pipeline if the Commission (or review panel) recommends that it not approve the project.²³ If the recommendation contained in the report is that a project not proceed, the GIC may only reject the application or ask that the recommendation be reconsidered.

Flexing its regulatory muscle: a preliminary assessment of the CER’s first two decisions

As mentioned above, most of the media and public commentary concerning BillC-69 focused on the changes that Parliament made to the facilities application process. However, the CERA also gave the CER jurisdiction over the economic regulation of pipelines. While many of the new provisions related to economic regulation appear similar to those the NEB administered under the NEBA, the CER is a new regulatory body and it may discharge its regulatory functions differently. Although it is too early to tell just how differently (or similarly) the CER will regulate the economic operation of pipelines, its first two decisions dealing with these matters hint at a regulator that will: (i) respond quickly when needed; and (ii) seek to maintain some semblance of regulatory continuity.

Within its first month of taking over from the NEB, the CER was asked to consider and determine two important applications concerning the economic regulation of the NOVA Gas Transmission Ltd. pipeline system (the NGTL System) and Enbridge’s Canadian Mainline Pipeline System (the Mainline). In both cases, the CER acted promptly, convening hearings and issuing decisions within a matter of weeks. In establishing the hearing processes for the two applications, the CER appears to have had regard to the nature of the applications and timelines in which it would need to issue its decisions. The Enbridge hearing consisted of written submissions and opportunities for written reply; the NGTL hearing relied on a hybrid approach, accepting written letters of comment and oral submissions. In the latter case, the Commission demonstrated that it can, when necessary, act quickly: in response to NGTL’s application, the Commission issued a hearing notice on Friday, September 20, held the oral hearing on Wednesday, September 25, and issued its decision (with reasons to follow) the next day.

Tariffs

On August 26, 2019 — two days before the official regulator changeover — NOVA Gas Transmission Ltd. (NGTL) filed an application with the NEB under s. 60(1)(b) of the NEB Act, seeking an expeditious amendment of the NGTL tariff (the Tariff) to incorporate a temporary service protocol (the Protocol) that would, for limited periods of planned maintenance and expansion-related outages commencing October 2019 and applying primarily throughout the summer months, allow NGTL to prioritize delivery and storage service, whether firm or interruptible, over upstream receipt service in areas subject to system constraints.²⁴

The system constraints that NGTL sought to resolve with the Protocol are complex. But to summarize: in August 2017, NGTL implemented a new service protocol that prioritized firm receipt and delivery service over all interruptible service types, including storage. Because NGTL System regulation applies System-wide, this limited the ability of shippers on the NGTL System to flow gas into storage (which always operates on an interruptible basis) or to other downstream markets.

The inability of shippers to access storage due to the curtailment of interruptible services was identified as one of the primary factors driving the price volatility that has severely impacted western Canadian gas markets. Due to its potential economic implications, the proposed temporary service Protocol enjoyed widespread support among producers that relied on the NGTL System to get their gas to market. Interestingly, the Government of Alberta was deeply involved in developing and advocating for the Protocol, including by consulting with NGTL prior to its application to the NEB and, ultimately, participating as an intervenor and providing oral argument in favour of the amendment.

As mentioned, the Commission issued a letter decision with reasons to follow the day after the hearing took place, approving the application as filed and permitting NGTL to amend the Tariff and implement the Protocol.

Tolls

On August 2, 2019, following extensive discussions with oil producers in western Canada, Enbridge Pipelines Inc. (Enbridge) announced the commencement of an open season for transportation on the Mainline (the Open Season). In announcing the Open Season, Enbridge also announced that upon the expiry of the current NEB-approved Competitive Tolling Settlement, it would transition the Mainline from a common carrier that operated entirely on an uncommitted basis, shifting the allocation of capacity on the Mainline such that 90 per cent was reserved for shippers with long-term commitments with 10 per cent of capacity for spot service.

The Open Season was scheduled to end on October 2. Given Enbridge’s control over more than 70 per cent of oil transportation capacity out of the Western Canadian Sedimentary Basin, had the Open Season gone ahead as planned, it would have dramatically altered the western Canadian oil market.

Suncor Energy Inc. (Suncor) responded to Enbridge’s Open Season proposal with a complaint to the NEB (the Complaint), asserting that the terms of Enbridge’s planned Open Season and the related transition from a common carrier to contract carrier pipeline: (i) violated the rules of open access the Board historically enforced; (ii) represented an abuse of a dominant market position; and (iii) would result in service terms and tolls that are unfair, unjust, unreasonable, and unjustly discriminatory. Three other parties — Shell Canada Limited (Shell), the Explorers and Producers Association of Canada (EPAC), and Canadian Natural Resources Limited (CNRL) — submitted letters that largely aligned with the issues that Suncor identified and positions it adopted in the Complaint. All of the issues raised in the Complaint would have been valid under the new CERA; however, due to the transitional provisions in Bill C-69,²⁵ the Complaint was heard by a Commission of the CER under the provisions of the old NEB Act.

Responding to the Complaint and the submissions from Shell, EPAC, and CNRL, the NEB initiated a written comment period — carriage of which was promptly taken over by the Commission — drawing participation from approximately 30 interested parties. Following response submissions from Enbridge and each of Suncor, Shell, EPAC, and CNRL, the Commission halted the Open Season.

The Commission’s reasons were set out in a brief letter decision issued two weeks after the hearing process concluded. While the decision itself does not deal with tolling matters in sufficient depth to indicate whether the CER will discharge its economic regulation of pipelines in a manner similar to or different from the NEB, the Commission did emphasize the importance of regulatory continuity — at least in respect of issues such as tolls and tariffs — expressing a desire to be consistent with past Board precedent:

In coming to its decision on this matter, the Commission has been guided by the established regulatory framework, including past decisions of its predecessor, the NEB, regarding toll and tariff regulation. The NEB’s past decisions consistently underlined the importance of fairness and transparency in open season processes. The NEB has also stated that market power must not be allowed to be abused, both in terms of substance and appearance or perception. An apprehension that some market players are abusing their power may lead to inefficient outcomes, and needs to be addressed.²⁶

Despite this intention to conform to past Board practice, the CER’s intervention with an industry-driven open season is a highly unusual step. However, the Commission’s decision is not entirely surprising. Indeed, Enbridge’s plan to transition the service model on the Mainline from common to contract carrier was unprecedented and, because no new capacity was offered, would significantly reduce industry’s ability to access uncommitted oil transportation capacity. In light of this, the Commission justified its departure from past Board practice by pointing to two overriding concerns: (i) the fairness of the Open Season process that Enbridge initiated; and (ii) “the perception of abuse” resulting from Enbridge’s dominant market position in a monopolized and capacity constrained industry.²⁷ Despite halting the Open Season, the Commission directed Enbridge to develop and return with a full application if it decided to proceed with an open season and service change.

Same regulator, different name?

What do these two decisions tell us? On their merits, they suggest that the Commission is concerned with the maintenance of regulatory continuity; however, it is important to remember that the provisions related to the economic regulation of pipelines in the CERA are essentially identical to those that were in the NEB Act. It should come as no surprise, then, that the Commission remained committed to the same principles that the NEB developed, even if it did expand their scope of application. On a more qualitative level, however, the speed with which the Commission commenced and completed its hearing processes demonstrates that it is mindful of the need for a responsive regulator to oversee the challenging dynamics of the Canadian energy industry.

Conclusion

As with any new legislative and regulatory paradigm, there will be growing pains. The changes brought about by Bill C-69 have broadened the scope of considerations the Commission and IA Agency must now review in assessing new projects, many of which are themselves amorphous and difficult to define. What is clear, however, is that the burden for new pipeline project proponents appears to be greater now than it was under the old regime. That said, with its first two decisions, the Commission has shown itself attuned to the needs of industry and the often complex market dynamics that shape the Canadian oil and gas sector. While we wait to see how the CERA and the IAA will shape regulatory processes moving forward, Alberta has challenged the constitutionality of Bill C-69, arguing that it improperly interferes with its jurisdiction to manage the development of its natural resources. In addition, the outcome of the 2019 federal election may result in further changes to the regulatory process.

* This article is a revised and updated version of an article first published by Burnet, Duckworth & Palmer LLP (19 September 2019), online: <https://www.bdplaw.com/publications/bill-c-69-introducing-the-canadian-energy-regulator-and-the-impact-assessment-agency>.

1. Canadian Energy Regulator Act and Impact Assessment Act, forming part of Bill C-69, An Act to enact the Impact Assessment Act and the Canadian Energy Regulator Act, to amend the Navigation Protection Act and to make consequential amendments to other Acts, 1^st Sess, 42^nd Parl, 2019, cl 11, s 44 [the CERA and IAA, respectively].
2. CERA, ss 185, 263, 299.
3. Ibid, ss 11(a) and (b).
4. National Energy Board Act, RSC 1985, c N-7, s 52(2)(e).
5. National Energy Board, “Reconsideration Report: Application for the Trans Mountain Expansion Project” (MH-052-2018) (22 February 2019) at 3.
6. IAA, s 63(e).
7. CERA, s 11(h).
8. Ibid, s 56.
9. Ibid, s 57.
10. Ibid, ss 183(2)(d) and (e), 262(2)(d) and (e), 298(3)(d) and (e); IAA ss 22(1)(g) and (l).
11. CERA, s 183(3); IAA, s 11, 27, 99.
12. CERA, s 183(3).
13. Canada, Government of Canada, The Canadian Energy Regulator Handbook, (Ottawa: Environmental and Regulatory Reviews, 4 February 2019), online : <https://www.canada.ca/content/dam/themes/environment/conservation/environmental-reviews/neb-handbook-e.pdf>.
14. IAA, ss 18(1) and (3).
15. CERA, s 214(1)(a).
16. Ibid, s 183(4).
17. Ibid, s 186(3).
18. Ibid, ss 185(c), 263(c); IAA, s 37.1(2).
19. Ibid, ss 186(3), 262(9).
20. IAA, s 28(2).
21. Ibid, s 65(3).
22. Ibid, s 65(4).
23. CERA, s 186(1)(b).
24. Canadian Energy Regulator, File OF-Tolls-Group1-N081-2019-04 01; Hearing Order RH-002-2019.
25. Supra note 1, s 36.
26. Canada Energy Regulator, “Letter Decision re Enbridge Mainline Open Season” (C01893-1) (27 September 2019) at 2 [internal citations omitted] [the Mainline Letter Decision], citing: NEB, RH-001-2012 Reasons for Decision; NEB, OH-01-2011 Reasons for Decision; NEB, OH-1-2009 Reasons for Decision; NEB, GH-001-2018 Letter Decision; NEB, OH-2-97 Reasons for Decision; NEB, RH-3-2004 Reasons for Decision.
27. Ibid, at 2.