Further to our publication of September 12, 2014 on “Vertical Compulsory Pooling of Oil and Gas Resources Appears to be Available in Alberta,” (found here) the AER, in a recent disposition letter (the “Disposition Letter”), has interpreted its enabling legislation as to what is a regulatory appeal, who can seek a regulatory appeal, and the test for regulatory appeal.

The Responsible Energy Development Act,(“REDA”) fully came into force on March 29, 2014 establishing the Alberta Energy Regulator (“AER”). Part 2 Division 3 brought in the “Regulatory Appeal” process whereby certain of the decisions made by the Regulator may be appealed to the Regulator by “eligible persons”. This procedure is new and neither the AER nor courts have had the opportunity to provide much guidance on it.2 In the recent Disposition Letter, in dismissing a request for a regulatory appeal, the AER confirmed that an unsuccessful applicant is not an “eligible person” having a right to request a regulatory appeal where no oral hearing was heard before the application was dismissed.​  The AER's underlying rationale was likely that the decision is practical and prevents the regulatory appeal process from being abused by unsuccessful applicants.

Background

As we noted in our earlier blog post, in December 2013, the AER received an application for a vertical compulsory pooling.  That application was dismissed by the Authorizations Subsurface Oil and Gas Group (“ASOGG”) of the AER without an oral hearing.  The unsuccessful applicant then filed a request for regulatory appeal of ASOGG’s denial of its Application.

The Decision

Upon review of submissions by the parties and the ASOGG, the AER determined that the unsuccessful applicant was not an eligible person pursuant to section 38(1) of REDA. Pursuant to section 36(b)(ii) of REDA,  “eligible person” means a person who is directly and adversely affected by a decision of the Regulator that was made under an energy resource enactment, if that decision was made without a hearing. Therefore the issue considered by the AER was whether the unsuccessful applicant was directly and adversely affected by the AER’s decision to deny its compulsory pooling application.  On its face, it would seem that an unsuccessful applicant would, in fact, be directly and adversely affected by the decision.  However, relying on the Alberta Court of Appeal decision in Windrift Ranches Limited v. Alberta Surface Rights Board, the AER held that an applicant whose application is denied is not a person who is directly affected by the denial decision.

In Windrift, a majority of the Court of Appeal was considering sections 28 and 42 to 44 of the 1980 ERCA. 3 Section 28 was a privative clause limiting judicial review of the Board’s decisions subject to sections 43 (Review of order made without a hearing) and 44 (Appeal). While section 42 allowed the Board to review, rescind, change, alter or vary an order or direction made by it, or rehear an application before deciding it, section 43 permitted a person affected by an order or direction made by the Board without a hearing to apply to the Board for a hearing within 30 days of the date of the order or direction. The Court of Appeal held that a review without a hearing would entitle a person affected to invoke section 43 whereas a determination that no review was required would not be an “order or direction of the Board.” The Court concluded that while section 42 empowered the Board to review, it did not give the appellant any right to a review. Since the Board did not conduct a review as contemplated by section 42, there was no right to a hearing under Section 43.

In the Disposition Letter, the AER equated section 56 of REDA to section 28 of the Energy Resources Conservation Act (ERCA). Section 56 of REDA similarly provides a privative clause limiting judicial review of the Board’s decisions subject to sections 38, 42 and 45.4​ The AER also equated section 38 of REDA (Request for regulatory appeal) to section 43 of the ERCA (Review of order made without a hearing) and, relying on Windrift, held that a person whose application to the AER is denied is not, by that fact, a person directly and adversely affected by the denial decision. According to the AER, to hold otherwise would put an unsuccessful applicant in a better position to demand a hearing than it has on the original application which the AER denied without a hearing pursuant to section 34 of REDA. The AER stated that this would frustrate the desire for finality in decision-making that is reflected in section 56 of REDA.

The AER also determined whether the factor for dismissal listed in section 39(4) of REDA applied to Applicant's request. The Applicant had argued that if it was found to be an "eligible person," section 4 of the Responsible Energy Development Act General Regulation [1] (the “General Regulation”) requires the AER to grant it a regulatory appeal. The AER interpreted section 4 of the General Regulation to require the Regulator to hold a hearing only if it has decided to conduct a regulatory appeal and if an eligible person's concerns have not been addressed or resolved. The AER held that section 4 does not bear on the question whether a regulatory appeal request should be granted which must be decided in accordance with section 39(4) of REDA.

The Implications

The AER’s Disposition Letter is important given the AER’s interpretation of the new provisions in the REDA based on a case decided under different legislation. The AER relied on Windrift, which considered review and variance provisions in the 1980 version of the ERCA, and equated a regulatory appeal to a review and variance proceeding.  The AER had previously held, relying on the Responsible Energy Development Act Transition Regulation[1](the “Transition Regulation”), that review and variance proceedings, such as review hearing, became regulatory appeals when the REDA came into force.[2] However, given that REDA has separated review and variance into “regulatory appeal” and “reconsideration” in two different divisions, the validity of the AER’s reliance on Windrift to interpret whether an applicant has standing to seek a regulatory appeal under REDA is yet to be confirmed. The AER is clearly attempting to uphold the principle of finality in the AER’s decision-making as Applicants will be encouraged to put their best foot forward in the application stage and will not have recourse to a regulatory appeal when they are unsuccessful.  This may put the focus of the regulatory appeal back where the AER must believe it should be: on those who were not involved in the application process and who are directly and adversely impacted by a decision in which they did not participate.