Articles

The Energy Statutes Amendment Act – British Columbia’s New Regulatory Regime and New Liabilities for the Energy Industry1

Authors: , , and * | October 2023 – Volume 11, Issue 3, 2023

Introduction

On November 24, 2022, British Columbia’s Energy Statutes Amendment Act (the “ESAA”) received Royal Assent. The ESAA makes sweeping changes to the regulation of energy in British Columbia, and will rename the “Oil and Gas Activities Act” the “Energy Resource Activities Act”.[2] Similarly, it replaces the “Oil and Gas Commission” with the “British Columbia Energy Regulator” (the “Regulator”).[3] The amendments made by the ESAA will broaden the scope of the regulatory regime beyond oil and gas to contemplate “energy resources” which include hydrogen, petroleum, natural gas, methanol, and ammonia.[4] Additionally, the revised Energy Resource Activities Act will expand the potential liabilities for oil and gas or storage activities and for prescribed energy resource activities beyond just the applicable permit holder.[5] Each of these categories of changes will be discussed in turn, along with potential Court challenges and defences related to the expansion of liability under this new regulatory regime.

Part I – The New Regulatory Regime

By expanding the scope of the Energy Resource Activities Act to include additional energy resources, the provincial government will establish a comprehensive regulatory regime with a single regulator throughout British Columbia. The ESAA will do this by repealing the definition and references to “oil and gas activity” and replacing it with “energy resource activity,” which explicitly includes the “construction or operation of… a facility for manufacturing hydrogen, ammonia or methanol from petroleum, natural gas, water or another substance.”[6]

Following the amendments, a person must acquire a permit prior to constructing or operating a facility for manufacturing hydrogen.[7] In order to acquire a permit, a person must apply to the Regulator and provide, among other things, a description of the proposed site of the activity and a written report regarding consultations with the owner of the land on which the person intends to carry out the activity.[8] Further, the Energy Resource Activities Act also delineates the process to transfer a permit related to a hydrogen project, the environmental measures that must be complied with, what must be done in the event of spillage, and when an official may enter land or a premises being used as a hydrogen facility.[9] In relation to environmental protection, the interplay between provisions in the Energy Resource Activities Act and those already in the Environmental Management Act and the regulations under it remains unclear.

Other Amendments

In addition to expanding the scope of the regulatory regime and potential liability for principals and responsible persons, other noteworthy amendments include:

  • The purpose of the Energy Resource Activities Act will be revised to expand the Regulator’s mandate to “regulate energy resources activities in a manner that protects public safety and the environment, supports reconciliation with Indigenous peoples and the transition to low-carbon energy, conserves energy resources and fosters a sound economy and social well-being.”[10]
  • The renamed British Columbia Energy Regulator’s board now must consist of between five and seven directors (opposed to three), consisting of at least one deputy minister and one Indigenous person.[11]
  • The revised Energy Resource Activities Act provides that the Regulator will have to publish a list of orphan sites and that if the Regulator disposes of property abandoned at an orphan site, the proceeds of the disposition must be paid into the fund used to help pay for the cost of restoration of orphan sites and related purposes.[12]

Part II – Liabilities and Challenges

Expansion of Potential Liabilities

Pursuant to the revised Energy Resource Activities Act, “principals” and “responsible persons,” in addition to the applicable permit holder, can be found liable for oil and gas or storage activities and for prescribed energy resource activities.[13] The Energy Resource Activities Act will define “principal” to include directors and officers of a corporation as well as individuals who control, directly or indirectly, the corporation.[14]

The term “responsible person” will be defined exceptionally broadly to include people who (i) hold, or have a legal or beneficial interest in, the petroleum or natural gas rights, or the location for the applicable permit, and/or (ii) have a legal or beneficial interest in production or profits resulting from an energy resource activity authorized by the applicable permit.[15] Additionally, if a person has ceased to be a responsible person for a permit, the Energy Resources Activities Act will give the Regulator the power to designate the person as still being a responsible person if the Regulator is satisfied that the person intended to evade responsibility.[16]

Further, the Regulator will be able to establish a responsible persons register and any people listed in such register will be “conclusively deemed” to be a responsible person.[17] If a responsible person is listed in the Regulator’s register and wants to be removed, they will have to satisfy the Regulator that they are not a responsible person, and they may also be required to provide the Regulator information or records to assist with identifying other responsible persons for the permit.[18] The grounds on which individuals will be placed on the register remain unclear and may well be open to challenge if not sufficiently related to the fundamental purpose of the legislation. Concerns may also be raised with respect to the reverse onus placed on an individual seeking to challenge inclusion in the register as it goes firmly against well-established jurisprudence placing the onus of proof upon the state actor seeking to: (i) impose legal obligations on an individual or entity; or (ii) circumscribe their range of permissible activity.

Following the enactment of the ESAA, the Regulator will be given increased power and will have the authority to take action in various instances including, but not limited to, the following:

  • if the permit holder or former permit holder has ceased to exist or fails to comply with a specified provision, the Regulator can make an order compelling a responsible person or principal to (i) provide security to the Regulator to ensure performance of an obligation, (ii) carry out actions for the restoration or protection of public safety, and (iii) reimburse the Regulator for costs and expenses incurred in certain circumstances;[19]
  • in relation to an orphan site for which the permit is cancelled or expired, the Regulator can make an order requiring a principal or responsible person to (i) perform each obligation imposed under the Energy Resource Activities Act or applicable permit, (ii) comply with prescribed requirements; and (iii) carry out actions for restoration or protection of public safety;[20]
  • the Regulator can transfer a permit in relation to an orphan site to a responsible person or a principal of the current or former permit holder;[21] and
  • in certain instances, the Regulator can transfer an authorization to conduct activities related to an energy resource activity to a third person, including a principal or related person.[22]

The revised Energy Resource Activities Act, however, will provide some minimal safeguards for principals and responsible persons. For instance, the Regulator will have to give a principal an opportunity to be heard prior to making an order against the principal, and upon application by a responsible person who has restored an orphan site, the Regulator may compensate the responsible person for a portion of their costs.[23] It should be noted though, that legislators have made an effort to protect orders made by the Regulator against persons other than principals, even when the burden imposed is disproportionate to that person’s interest in, control over, or benefit from the relevant energy resource activity, by including a statutory protection against such orders from being considered unreasonable, and therefore vulnerable to court challenge.[24] As a bold attempt on the part of the legislature to limit the traditional supervisory role of the courts in relation to exercises of a statutory power we would expect this provision to be tested on constitutional grounds in the right case.

The Energy Resource Activities Act is also noteworthy for its reference to supporting reconciliation with Indigenous peoples in the “purpose” provision of the Regulator.[25] Any exercise of a statutory power that may impact Indigenous interests must take into account those interests in keeping with the constitutional duty to consult and, where appropriate, accommodate Indigenous interests. Including this reference in the context of the function of the Regulator represents another aspect of the expanding approach to reconciliation with Indigenous peoples, one requiring that those interests be taken into account as part of the regulatory function over energy resource activities. Query what the remedy would be in the event that the Regulator in a given exercise of its statutory powers acts or decides in a manner that fails to support reconciliation.

Failure to comply could lead to prosecution of the company or its directors or officers with potentially quasi-criminal sanctions. The Energy Resource Activities Act as before is to be enforced through the imposition of administrative penalties and/or quasi-criminal prosecution for the more serious violations.[26] In the case of the latter, a fine of up to $1,500,000 or imprisonment for not more than 3 years or both can be imposed in the event of a conviction. In a prosecution for an offence, it is sufficient proof of the offence to establish that it was committed by the defendant’s contractor, employee, or agent even if the contractor, employee or agent has not been identified or prosecuted.

Similarly, if a corporation commits an offence, a director or officer of the corporation who authorized, permitted or acquiesced in the offence also commits the offence, as does any other person who: (a) is directly or indirectly responsible for the act or omission that constitutes the offence, and (b) is a contractor, employee or agent of the person or of an other person described in (a), whether the corporation is also prosecuted or not.

Anyone facing an investigation or an allegation of non-compliance under the Energy Resource Activities Act will want to ensure from the outset that the full panoply of procedural rights afforded to targets of a regulatory investigation under the Charter of Rights and the common law (such as the right to counsel, the right to silence, the right to know the allegations faced) are properly assessed and if appropriate asserted. In the event that the investigation results in charges being laid, there are substantive defences that can be raised to this type of offence such as the defence of due diligence, mistake of fact or law, officially induced error and the defence of necessity.

Conclusion

The passing of the ESAA brings with it significant changes to the regulation of energy in British Columbia. Notably, the ESAA will widen the scope of the application of the revised Energy Resource Activities Act to capture natural resources including include hydrogen, petroleum, natural gas, methanol, and ammonia. The ESAA will also update the goal of the revised Energy Resource Activities Act to include the preservation of the environment and the protection of public safety while supporting Indigenous reconciliation efforts to help foster a sound economy and social well-being.

The revised Energy Resource Activities Act will provide that certain persons, including directors and officers of a corporation, can be found liable for activities conducted by the applicable permit holder. Further, following the amendments, several aspects of the revised Energy Resource Activities Act remain uncertain, including how the goals of supporting Indigenous reconciliation and environmental preservation will be advanced in practical terms. With other sections of the ESAA coming into force in the future, it is important to be mindful that failure to properly abide by the provisions of the revised Energy Resource Activities Act may result in penalties of varying degrees, some of which may be as severe as quasi-criminal prosecution.

  1. This article is an updated version originally published by McMillan (1 February 2023), online: <mcmillan.ca/insights/the-energy-statutes-amendment-act-british-columbia-welcomes-the-hydrogen-industry/>.

* Sasa Jarvis is a partner at McMillan LLP. Her practice areas include capital markets and securities, as well as natural resources.

Ralph Cuervo-Lorens is a partner at McMillan LLP. He is a leading lawyer practising environmental law and regulatory compliance and dispute resolution for clients in primarily the manufacturing, municipal, construction, transportation, energy and mining industries.

Sean Ralph is a partner and is senior energy lawyer at McMillan LLP. He has exceptional expertise in domestic and international energy transactions and major industrial project development in the energy, renewable power and mining industries.

Jordan Ghag is an associate at McMillan LLP. He is a senior associate in the firm’s capital markets group building a practice focusing on natural resources and other highly regulated industries.

  1. Energy Statutes Amendment Act, SBC 2022, c 42, s 1 [ESAA] (the name change will occur once section 1 of ESAA is in force).
  2. Ibid, s 5.
  3. Ibid, s 2(d) (see new defined term “energy resource”).
  4. Ibid, s 14; Oil and Gas Activities Act, SBC 2008, c 36, s 21, as amended by ESAA, supra note 2, s 43.01 [OGAA].
  5. ESAA, supra note 2, s 2(f) (see new defined term “energy resource activity”).
  6. OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 64.
  7. Ibid, ss 22, 24, as amended by ESAA, supra note 2, s 64.
  8. Ibid, ss 21, 29, 36, 37, as amended by ESAA, supra note 2, s 57.
  9. ESAA, supra note 2, s 6.
  10. Ibid, s 5.
  11. Ibid, s 19.
  12. Ibid, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.01.
  13. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.01.
  14. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.02.
  15. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.06.
  16. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.05(1).
  17. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.05(2).
  18. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.07.
  19. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.08.
  20. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.09.
  21. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.10.
  22. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, ss 43.11(2), 43.12.
  23. ESAA, supra note 2, s 14; OGAA, supra note 5, s 21, as amended by ESAA, supra note 2, s 43.11(3).
  24. ESAA, supra note 2, s 6; OGAA, supra note 5, s 4, as amended by ESAA, supra note 2, s 6.
  25. OGAA, supra note 5, ss 62, 86.

 

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