Political change has come to Alberta. On May 5, 2015 the Alberta Progressive Conservative party lost its four-decade hold on power, ushering in a majority NDP government that has pledged to raise corporate taxes and reassess oil and gas royalties. Canada’s oil industry now faces a new era of policy uncertainty on matters including royalties, refining, pipelines and environmental regulation. The extent of change – or even who the key Ministers in a Notley government directing those changes may be – remains to be seen.
The scope of the NDP victory: 53 seats out of 87 with representation from all areas of the province, the election of the rightward leaning and rurally-focused Wildrose Party as the Official Opposition and the collapse of the Progressive Conservatives to third party status mean that Premier-elect Notley has a broad mandate for a political reset in Alberta. Whether she has much room to manoeuvre on energy policy, given the economics of a province struggling with low oil price, is another matter. Oil and gas issues will be an immediate focus for the new Premier, and with a caucus which has limited corporate experience, a portfolio she may retain for herself.
Key aspects of NDP energy policy are expected to include:
Resource Owners’ Rights Commission
In the Alberta oil and gas sector, royalties are the top policy issue and have a sensitive history. During the election, the NDP called for a review of the highly complex royalty system. Premier-elect Notley has specifically committed to establishing a Resource Owners’ Rights Commission to assess the existing royalty structure to ensure a competitive, “full and fair return to the people of Alberta for their energy resources.”
The Commission will consist of up to ten Albertans and have representation from: (i) Albertans of aboriginal ancestry; (ii) Alberta’s energy industry; (iii) labour; (iv) energy economics experts; and (v) sustainable development experts. The Commission’s focus would include examining comparative returns in other jurisdictions and potentially restructuring Alberta’s royalty framework.
Processing and Refining
The Alberta NDP is committed to encouraging investment in processing and refining within Alberta. This could include: (i) amending the provincial royalty structure to encourage more resource processing within Alberta; (ii) implementing a processing and refining job creation tax credit; and (iii) introducing an upgrader royalty credit.
An NDP government is expected to review the province’s environmental protection laws. Specifically, Premier-elect Notley proposes to phase out coal-fired electricity generation and expand the use of renewables.
While Premier-elect Notley came under fire in the election campaign for her pipeline stance, it has nonetheless been clear. The NDP does not support the Northern Gateway or Keystone XL Pipelines. It has promised to support the Energy East Pipeline and Kinder Morgan Expansion. This is broadly consistent with the position taken by federal NDP leader Thomas Mulcair.
Increase in Energy Sector Tax and Operating Costs
The Alberta NDP has proposed a number of taxation changes that will raise the operating costs for corporations in the energy sector. The NDP intends to increase corporate tax rates to 12% (from 10%) and boost efforts to collect unpaid corporate taxes. In addition, the NDP has committed to increasing the minimum wage to $15 per hour by 2018.
The Alberta NDP election platform proposed that they “…will properly and effectively “smart regulate” Alberta’s electricity retail system to give Albertans more stable electricity prices and to protect the public interest from financial manipulation.” Details of “smart regulate” have not been fleshed out.
In an effort to increase transparency, the NDP has committed to banning corporate and union donations to political parties and extending Alberta’s salary disclosure list to report on the province’s agencies, boards, commission and public infrastructure.
The Alberta oil and gas sector is in uncharted political territory after the NDP’s unprecedented rise to power and a transition from 44 years of Progressive Conservative rule. Significant changes on royalties, taxes and environmental policy – all against a backdrop of low energy price – are widely expected, with unprecedented impact on companies doing business in Alberta.
Borden Ladner Gervais LLP will be watching and reporting on material changes impacting the oil and gas industry. We anticipate that there will be significantly greater regulatory change and oversight from the new government, particularly in environmental and natural resource development. Premier-elect Notley has nonetheless acknowledged the importance of the oil and gas sector to Alberta and indicated a desire to reach out to, and work with, industry. Accordingly, in this time of change and uncertainty it will be critical for business to forge relations with the new government in the early phases of policy origination and implementation.