At one time, energy regulatory counsel could often predict the decision of an energy regulator - whether in respect of utility rates or new pipeline or transmission facilities - with a degree of accuracy. This was not so much because the regulator's thinking was overly transparent, but rather that the parameters of economic cost of service regulation were quite predictable, and the primary criteria for approval of such facilities were also focused primarily on well-known concepts of need and economic feasibility.
Energy regulators continue to approve rates and projects that are in the "public interest"; that overriding criterion has not changed. But as the energy sector has evolved into a more competitive, market-driven industry, so too have decision-makers evolved to oversee markets rather than just entities, and to make their decisions with a view to accommodating a greater diversity of often competing interests. Their challenge has been to adapt and understand the variety of interests that continue to make up the public interest in a given circumstance.
It is the authors' view that those relevant considerations for these decision-makers have changed significantly in recent years, such that the face of energy regulation has itself also changed in material ways. Those for whom regulatory decisions are important would do well to understand the significant nature of this phenomenon, as it will have a considerable bearing on their approach and involvement. That understanding begins with an appreciation of the overriding public interest mandate that informs Canadian energy regulatory decision-making.
The Public Interest
In fact, there is very little consensus on exactly what comprises the public interest, other than the fact there is common ground that the concept must be flexible and evolve as circumstances change.
For example, the National Energy Board (NEB) currently describes the public interest in these terms:
"The public interest is inclusive of all Canadians and refers to a balance of economic, environmental and social interests that change as society's values and preferences evolve over time. As a regulator, the Board must estimate the overall public good a project may create and its potential negative aspects, weigh its various impacts, and make a decision."2
The Alberta Utilities Commission (AUC), when considering whether to approve proposals for new energy projects, is specifically directed to have "regard to the social and economic effects of the development, plant, line or pipeline and the effects of the development, plant, line or pipeline on the environment" within Alberta.3
As was noted some 50 years ago by the Supreme Court of Canada in the Memorial Gardens case, a determination of what is in the public interest is really the formulation and expression of opinion.4 The court stressed that "facts must, of course, be established to justify a decision by the Commission but that decision is one which cannot be made without a substantial exercise of administrative discretion."5
As a result, the public interest remains a malleable concept, continuously being shaped by the particular circumstances and facts in a given case, and the elements that may be in competition with one another as part of this assessment. Howard I. Wetston, Q.C., Chair of the Ontario Energy Board (OEB), has recently stated that the public interest "is a concept that is notoriously difficult to define, and doing so rarely provides meaningful guidance."6 He noted that for regulators, the public interest must not be rigidly interpreted and applied. Instead, it must remain a concept that is elastic and should evolve and change within the decision-making environment that is being examined.
Mr. Wetston stated that when seeking guidance as to which competing interests will form part of the public interest analysis, one must first look to the regulator's empowering legislation. Any basis used to justify a finding in the public interest must be harmonious with the purpose and scope of the governing legislation and the goals that it is intended to achieve. With respect to setting utility rates that are just and reasonable, for example, "the Board must determine where the public interest lies between the interests of utility shareholders in a fair rate of return and the interests of consumers in obtaining service at a reasonable ... cost."7 So, legislative goals and objectives, which may themselves change over time, can inform a regulator's view of the public interest.
Different factors in an individual jurisdiction can sometimes lend themselves to uncertainty in predicting what elements will carry more weight in the balancing of the benefits and burdens of an energy project and whether it can be said to be in the public interest. In Sumas Energy 2 Inc. v. Canada (National Energy Board), the Federal Court of Appeal referred to its earlier decision in Nakina (Township) v. Canadian National Railway Co. where it held that:
...by definition, the term 'public interest' includes the interests of all the affected members of the public. The determination of what is in the public interest involves the weighing and balancing of competing considerations. Some may be given little or no weight; others much. But surely a body charged with deciding in the public interest is 'entitled' to consider the effects of what is proposed on all members of the public. To exclude from consideration any class or category of interests which form part of the totality of the general public interest is accordingly, in my view, an error of law justifying the intervention of this Court.8
In Sumas, the NEB dismissed an application for a certificate of public convenience and necessity to construct an international power line connecting a proposed power plant in the state of Washington to a substation in British Columbia. The power plant was intended to be located one kilometre south of the international border and would burn Canadian natural gas and transmit electricity via the line to the electricity grid servicing Western Canada and certain western U.S. states. The NEB considered, as part of its overall review of the application, the potential negative environmental impacts in Canada stemming from the power plant that was to be located in the United States.
The Washington State Energy Facility Site Evaluation Council (EFSEC) had recommended approval of the construction of the power plant. However, the NEB noted that the EFSEC was concerned with the impact of the project from a U.S. perspective, while it was tasked with considering what was in the Canadian public interest. In the Sumas case, the ultimate result was that these public interests did not coincide and the NEB dismissed the application.
As noted, the concept of a review by energy regulators having regard to the public interest is not new. It has been an integral part of the decision-making process practically since the advent of energy regulation itself. However, the various components of the public interest, and the weight afforded to them have evolved over time, depending on the state of public awareness, the interests potentially affected, social and environmental pressures, government policy, international market pressures and the state of the economy at the time that a decision is being made.
As energy markets have moved steadily to the forefront of our newspapers and television screens in recent decades, so too has the topic of energy become more of a preoccupation for government. Mr. Wetston, the OEB Chair, has said that the most significant component in the evolution of a regulator's public interest mandate is its consideration of government policy, which increasingly sets broad objectives aimed at affordability, reliability and environmentally-sensitive energy supply and infrastructure. He has recognized that "the [Ontario Energy] Board's independent view of the public interest will need to evolve to account for those imperatives"9 and policy objectives.
In some cases legislation explicitly permits a minister of the government to issue policy directives to a regulator. For example, in June 2000, the Ontario Minister of Energy, Science and Technology issued a policy directive under section 27 of the Ontario Energy Board Act, 1998 to the OEB on the setting of rates for the distribution of electricity. The Minister directed the OEB to give the highest priority to protecting "the interests of consumers with respect to prices and the reliability and quality of electric service".
Subsequently, the OEB held a generic hearing to give market participants and intervenors an opportunity to comment on the directive, and to present their views as to its impact on the Board's Distribution Rate Handbook. According to the OEB's September 29, 2000 Decision, utilities would still be able to earn market-based returns but would now have to phase in their revenue requirements evenly over three years to lessen the impact of rate increases on consumers. Utilities would not be permitted to recover any shortfalls in earnings relating to the phasing in of market-based returns. However, they would be allowed to retain additional earnings from productivity improvements achieved during the transition period. The Board thus adjusted its view of the public interest to accommodate the Ontario government's policy objective of giving primacy to consumer protection.
Of course, as societal values continue to change, government policy and priorities may also change. Governments will continue to expect that these changing policies will at least be taken into consideration by regulators, even if there is no specific legislative directive requiring them to do so. It is more problematic for a regulator to determine how to take government policy into account in discharging its public interest mandate if there is no specific legislative directive that it do so, especially if the policy conflicts with accepted regulatory principles or policy. This scenario raises the question as to how far a regulator should go in adopting government policy, while at the same time retaining its quasi-judicial independence.
For present purposes, however, the point is that government policies in the energy area are much more susceptible to change today, and assuming such policies to be relevant factors for regulators, they present a challenge to regulators in their decision-making.
In turn, government energy policies can also mean greater uncertainty for those involved in the energy business. Some governments have a greater tendency to intervene in the market place while others may delay in making important policy decisions that impact investor decisions. In either case, uncertainty is created for those with interests in the energy sector. Investors may decide not to invest in a jurisdiction if the government of the day changes its policies frequently or is unclear about how its policies will be implemented.
Similarly, if a government strays into making policy concerning matters that would normally come under a regulator's mandate, then the accepted regulatory goals of predictability and consistency are diminished. For example, when a government sets or puts a cap on retail gas or electricity rates, this may create uncertainty for the regulated companies since the government's policy decisions may be based on political rationale rather than regulatory principles.
The New Regulatory Environment
From an historical perspective, there is no doubt that the relevant factors for energy regulators have significantly evolved. In the area of rates, pure cost of service principles have given way to a variety of incentive or performance-based regulatory schemes, where the benefits of efficiencies are shared between the utility and its ratepayers. Such innovative approaches continue today, as regulators remain increasingly focused on results-oriented regulation rather than prescriptive requirements, in order to allow flexibility in meeting regulatory goals. Concentrating on performance goals and providing guidance regarding best practices has allowed regulators to move beyond simply "policing" the energy industry. Regulated entities are given more flexibility when they are allowed to determine how they will reach these objectives. For example, regulators may specify that a utility must have management systems in place that promote public safety and environmental protection; however, it is for the utility itself to decide how to meet this requirement in the most effective and efficient way.
A review of more recent regulatory decisions in many Canadian jurisdictions reveals that regulators are also increasingly focused on sustainable and community-oriented decision-making. Integrating social prosperity, environmental excellence and economic prosperity into the concept of sustainable development is a global objective that Canadian regulators strive to achieve. Considerations beyond the normal economic issues have become more relevant for regulators and in turn, this approach has likely resulted in a substantial increase in the number of parties interested in their dockets.
This is increasingly seen in new types of applications, involving new types of intervenors and issues, finding their way to energy regulators. These present added challenges and are prompting regulators to reassess the processes used to interact with their stakeholders. Energy regulators are more frequently seeing parties who are not assisted by consultants or counsel. As the cost of energy continues to increase, and new infrastructure is proposed, sometimes in congested areas, regulators are also dealing with more communities.
Many want their issues resolved in a single process and dealt with in terms they understand. Giving more guidance and information to these new intervenors is necessary. Some do not understand that their concerns may fall outside a particular regulator's mandate. Responding to those who are unfamiliar with the process and deciding how to address their needs must be balanced with efficient decision-making.10 Although many issues are now settled by negotiation, this new environment leads to greater intensity and complexity in the public hearing process as regulators seek to accommodate diverse and often unfamiliar parties.
Pamela Nowina, Vice-Chair of the Ontario Energy Board recently stated that lawyers and parties familiar with the regulatory process need to bring an understanding and tolerance for others to the process.11 She noted that as the process evolves and regulatory decision-making affects new and diverse interests, landowners and interested parties with no prior exposure to the process who may lack an in-depth understanding of how all of the intricate pieces fit together, can begin to feel disconnected from the decision-making process. Boards are continuing to strive to be more inclusive to ensure that complex proceedings include representation from individuals that are least likely to know how to get involved. Ms. Nowina noted that beyond a board's normal consideration of economic and reliability issues, it must also determine whether proper weighing and evaluation took place with respect to issues of environmental protection, sustainability and safety. She observed that these issues clearly touch upon the lives of "real people." Therefore, these individuals should be an integral part of the proceedings before various regulatory boards.
New Issues in Rate Making
As noted earlier, traditional approaches to rate-making have been overtaken by new approaches designed to capture efficient conduct by utilities of their business. But even as this paper is being written, still further potential changes loom on the horizon.
Since 1996, the NEB has followed a formula approach to the determination of return on equity for the principal transmission pipelines subject to its jurisdiction.12 While this approach has been unsuccessfully challenged in the past, Trans Quebec & Maritime Pipeline (TQM) has renewed the debate in its application to the NEB concerning its 2007/2008 Cost of Capital, in which it will argue that the Board's formula approach underestimates the overall fair return on equity for TQM and should not apply in the relevant test period. The application will be heard by the NEB beginning September 23, 2008, in what promises to be an interesting chapter in the continuing evolution of financial regulation in the Canadian energy sector.
An equally interesting recent example of a new issue that has arisen in the context of utility rates can be found in Advocacy Centre for Tenants-Ontario v. Ontario Energy Board ("OEB").13 There, the Ontario Divisional Court allowed an appeal from a decision of the OEB, declaring the Board had the jurisdiction to establish a low-income affordability plan as part of its rate-setting function. Enbridge Gas Distribution Inc. had sought approval from the Board of its gas distribution rates based on the Board's traditional, standard cost of service rate-making principles. The appellant, Low Income Energy Network (LIEN), intervened to argue that the OEB could consider the ability to pay in setting rates if it was necessary to meet broad public policy concerns and that this should be included on its list of issues. The OEB rejected the issue on the basis that it was outside its jurisdiction, and that the LIEN proposal amounted to an income distribution scheme. The OEB also recognized that the traditional, if not universal approach to rate-making for a monopoly was to charge the same amount to all consumers within a given consumer group, based on cost of service.
The majority of the Divisional Court, however, disagreed, finding that the OEB does have the jurisdiction to take into account the ability to pay in setting rates. They reasoned that section 36 of the Ontario Energy Board Act (OEB Act) authorized the Board to set "just and reasonable" rates by employing "any method or technique that it considers appropriate". The OEB could take into account income levels in pricing to achieve the delivery of affordable energy to low income consumers on the basis that this could meet the objectives set in section 2 of the OEB Act of protecting "the interests of consumers with respect to prices". So long as the global amount of return to the utility based upon a cost of service analysis was achievable, then rates/prices to generate that global amount was within the Board's discretion. The majority limited its decision to the issue of jurisdiction and did not say how or the manner by which the OEB should exercise its jurisdiction.
Swinton J. wrote the dissent. She reviewed the regulatory landscape and concluded that considerations of justice and reasonableness in rate setting arise between the utility and consumers as a group, not among different groups of consumers based on their ability to pay. A low-income rate affordability program could run counter to the Board's objectives under section 2 of the OEB Act "to protect the interests of consumers" because it would result in one group benefiting at the expense of others who were charged more to support or subsidize such a program. Further, the ability to order a rate affordability program was outside the Board's traditional role and was better addressed by the legislature as a matter of social policy.
The result of this decision could be to permit the consideration of many issues that would otherwise fall outside the scope of a traditional rate case. A consequence of adding more issues to the list may be longer and more complex proceedings.
The uncertainty created by this decision has in fact lead the OEB to develop a new consultation process. This process allows interested parties to provide input to the Board in relation to its consideration of the ability to pay when setting utility rates. The Board intends to examine regulatory policies and measures that include possible initiatives relating to customer service, such as billing plans and arrears management, as well as targeted conservation and demand management programs as they relate specifically to low-income consumers.
Energy Infrastructure - New Projects, New Players, New Rules
As energy policy changes, the demand for energy grows and existing infrastructure ages, Canadian energy regulators have been confronted with an increasing array of proposed infrastructure projects. Some of these are prompted, directly or indirectly, by the need to replace existing older infrastructure; an example is Hydro One's current proposal to construct a 500 kV transmission line to connect the Bruce Power nuclear generating plants as well as renewable generation to markets in Southwestern Ontario, as that province pursues its policy of eliminating coal-fired generation.
Incremental Canadian and North American energy demand underlies some of these recent developments. Examples include: various new oil pipelines to carry Alberta's oilsands production to refining capacity in the United States, and natural gas pipelines to these same oilsands; projects seeking approval to attach northern (Mackenzie Gas Project) and eastern offshore Canadian natural gas resources (Deep Panuke); and continuing field work on the massive Lower Churchill hydro project in Labrador, with a view to commencing construction in 2009. In addition, Canada will soon have its first liquefied natural gas (LNG) terminal, when the Repsol-Irving Oil Canaport terminal in New Brunswick begins operations later this year. Then regasified LNG will be sold to Maritime Canada markets, and as well, via the Emera Brunswick Pipeline, to northeast U.S. markets.
Still other projects are proposed simply to keep pace with the demands for energy that result from the growth of regional economies, such as the development of electricity transmission projects in Alberta.
The development of these projects places considerable burdens on Canadian energy regulators. Their proponents and investors insist on an efficient decision-making process; regulators must strive to have and deploy the necessary resources to process and examine applications for necessary permits and licences, and government policy makers - whose decisions may have served to prompt these new projects - keep a watchful eye on their progress.
The Increasing Importance of Public Consultation
Importantly, these new projects must contend with comprehensive information and public consultation requirements that are more detailed than ever before. Such requirements test the patience of proponents and their advisors; in reality, however, such requirements are no more than a regulatory reflection of the various elements of the public interest that currently inform decision-making in the energy regulatory sector.
Few, if any, Canadian regulators will now accept an application for authorization to build a new pipeline or transmission facility as being complete in the absence of full compliance with their rules, guidelines or requirements relating to advance public consultation requirements. Regulators want to know how a proponent has communicated information concerning its project to potentially affected members of the public: how was their mailing list developed? what information was sent? how many open houses were held? who attended? what concerns were expressed about the project? have those concerns been resolved? what concerns are outstanding?
Remember, we are not concerned here with technical issues, nor even matters which may be encompassed within the reasonable well-settled parameters of environmental assessment processes. Public consultation, in and of itself, has come to be an essential ingredient of a sound and strategic approach to securing necessary regulatory approvals for new energy infrastructure; failures on this front can be fatal to the success of these projects.
Public consultation requirements have in turn led to the increasing presence in regulatory hearing rooms across Canada of intervenors and intervenor groups. As proponents are required to explain their projects in more detail to more people, this is perhaps not surprising, particularly in jurisdictions that offer a degree of intervenor funding. The membership of these groups is diverse, extending to include not only directly affected landowners, but interested persons who bring deeply held, if not always legitimate, convictions to the regulatory process about the pace, size and impacts of such projects on their communities and lifestyle.
The resourcefulness, resilience, skill and talent that can be brought together in a local intervenor group is often quite remarkable. Proponents need to recognize these groups at an early stage, and their potential to influence both the regulatory process itself as well as its outcome. Depending upon the circumstances, proponents are often well-advised to establish an early dialogue with these groups, in order to better understand their issues and concerns.
A recent example of such involvement arose in connection with the Emera Brunswick Pipeline application to the NEB, mentioned earlier. There, the route selected for the proposed pipeline to carry regasified LNG from Saint John to the Canada-U.S. border included a portion that would traverse Rockwood Park within the city of Saint John itself, one of the largest municipal park areas in Canada. At no small cost to themselves, the 'Friends of Rockwood Park' mounted a political and regulatory campaign in defence of the park and against the route proposed by the project; the latter included substantial involvement - without counsel - in directing written interrogatories to, and cross-examining, the proponent. While the NEB ultimately approved the construction of the Brunswick Pipeline, that is not really the point; rather, it is that the 'Friends' effectively put the project to the test of rigorously demonstrating that it met the public interest criteria applied by the NEB.
While new energy projects often proceed through the regulatory process under the radar, it is increasingly the case that many such projects are attracting a degree of media scrutiny. A strategic approach to securing regulatory approvals must recognize this reality; indeed, many of the aforementioned local intervenor groups view the media as a resource.
While regrettable, and rare, it is the case that the emotional element for local intervenors related to these high profile projects can lead to confrontations under intense media and public scrutiny. This in itself presents serious challenges to regulators; in the best of all worlds, and with the best of intentions of balancing the legitimate interests of intervenors and project proponents during hearings, the process itself can be derailed. In one recent situation an inappropriate response by the regulator to the circumstances presented led to court challenges and the ultimate conclusion that the entire process was tainted by reason of an apprehension of bias. Such unfortunate outcomes undoubtedly impair public confidence in the regulatory process. The need for the project remains, however, and the process must start all over again, hopefully with a definite eye on the lessons learned.14
On the more positive side, regulators clearly recognize this new paradigm of greater public involvement and the need for a meaningful energy dialogue. For example, the NEB recently created a Land Matters Consultation Initiative (LMCI). This initiative was launched in October 2007 to provide a forum for interested parties and the NEB to identify sustainable solutions to land issues and to allow for a better understanding of various land owner interests. Approximately 165 individuals, groups and companies have registered their interest and more than 400 people have participated in the consultations across Canada. The LMCI is examining legislation, guidance notes, filing requirements, inspections and audits as possible ways to improve the regulatory process.
As an example of the NEB's goal-oriented strategy, the LMCI aims to provide clearer guidance to those involved in land matters, especially in relation to effective company interactions with landowners, the Board's processes, and the financial and technical aspects of pipeline abandonment.
Key issues that have been identified in the process to date include: company/landowner relations; the role of the NEB; company consultation programs; involvement of aboriginal groups; participant funding; acquiring access to the right-of-way; pipeline operations; accessibility of NEB processes; and abandonment approaches.
At a more general level, the NEB has apparently heard that its processes are complex and intimidating, and that the Board should take a more active role with affected communities and over all phases of the life of a pipeline. Improved communication relating to the impacts of new regulations, how NEB processes work and agricultural issues were other areas of importance.
As it relates to the abandonment of pipelines - a current topic, given the age of many such facilities in Canada - the Board has heard of concerns as to knowledge gaps on the physical issues of abandonment, post-abandonment responsibility and liability; end-state of land; abandonment methodologies; and planning for pipeline retirement and associated land reclamation.
The NEB intends to release draft reports concerning some of these topics in November 2008 and will invite further public comment before the final reports are completed and an action plan is released in the first quarter of 2009. The financial aspects of pipeline abandonment will be dealt with at a public hearing in early 2009.
As Canadian energy regulators increasingly require project proponents to demonstrate compliance with detailed consultation requirements, at the same time they also struggle to balance this important element with increasing pressures for an efficient decision-making process. If regulators are going into communities, undertaking consultation initiatives, disseminating more information and coming up with solutions to address new concerns, this may decrease efficiency in terms of increasing the length of time needed to render a decision. On the other hand, the additional time may be offset by fewer motions and appeals. The path to a regulatory decision is increasing in complexity, but the result may be increased certainty in the end which is needed when making investment decisions.
Energy infrastructure projects may also impact First Nations. Canadian law is clear that to justify the infringement of their interests, the Crown has a fiduciary duty to consult affected aboriginal groups. What this means in a given circumstance, however, can be extremely opaque; proponents who extensively engage affected aboriginal groups have often been frustrated by Crown consultation that falls short of what the law requires. Nevertheless, project proponents must engage in the aboriginal consultation process to protect against potential court challenges and to meet regulatory requirements.
Several provinces have adopted guidelines to try and clarify what is required to fulfill the duty to consult. In British Columbia, the Oil and Gas Commission implemented Consultation Operating Guidelines (BC Guidelines) on December 1, 2006. The BC Guidelines provide a series of steps that project proponents must undertake to ensure that they meet First Nations consultation requirements imposed by the province. Individual agreements have been signed by the Provincial Government of British Columbia and nine First Nations bands, including: the Doig River First Nation, the Fort Nelson First Nation, the Halfway River First Nation, the Prophet River First Nation, the Saulteau First Nations, the West Moberly First Nations, the Dene Tha' First Nation, the McLeod Lake Indian Band and the Blueberry River First Nations; all are members of Treaty 8. The purpose of the individual agreements is to assist in clarifying the process through which the Province will discharge its duty to consult in respect of the various stages of oil and gas development to avoid or mitigate any potential infringements of the treaty rights of the various First Nations groups.
In Alberta, the provincial government implemented the First Nations Consultation Guidelines on Land Management and Resource Development (Alberta Guidelines) in its final form on November 14, 2007. The Alberta Guidelines confirm the province's commitment to "fulfill its duty to consult, to offer procedures for consultation, and to ensure a practical and efficient consultation process."15 In addition to the general regulatory requirements for consultation, proponents may be required to also meet individual government department requirements. Further, some First Nations groups have established their own protocols that a project proponent must meet. These multi-layer consultation requirements can certainly muddy the regulatory waters.
The Supreme Court of Canada has decided numerous cases concerning aboriginal consultation requirements but nowhere are there clear pronouncements as to how to ensure that adequate consultation and accommodation are achieved in a given case. Experienced counsel can assist project proponents in wading through the layers of guidelines, protocols and processes that each stakeholder or government department may require, but uncertainty still exists with respect to what will satisfy the duty in each case.
For instance, the massive Mackenzie Gas Pipeline project continues to face a number of regulatory challenges as it moves - slowly - through the application approval process. However, one of those challenges was the result of a claim commenced by the Dene Tha' First Nation for judicial review, wherein they alleged that the Government of Canada breached its duty to consult and accommodate the First Nation by excluding it from discussions and decisions regarding the design of the regulatory and environmental review processes related to the Mackenzie Valley Pipeline.16 As the court noted, the "enormity of the project and its inherent cross-jurisdictional character ... triggered the involvement of a multitude of regulatory mechanisms."17 These included seven major regulatory and environmental layers: (1) the Cooperation Plan, (2) the Regulators' Agreement, (3) the Joint Review Panel Agreement, (4) the Environmental Impact Terms of Reference, (5) the Joint Review Panel Proceedings, (6) the National Energy Board Proceedings, and (7) the Crown Consultation Unit. Phelan J., on behalf of the Federal Court, held that that the Crown had in fact breached its duty to consult.
The court granted declaratory relief and enjoined a joint review panel from considering any aspect of the pipeline which affected the Dene Tha's aboriginal or treaty rights, pending a remedies hearing and final remedy order.
Quite apart from First Nation issues, the Mackenzie Gas Project serves as a good example of the complexity and varying degrees of regulatory oversight that can complicate the project approval process. A project proponent must be prepared for the competing variables that may influence the decision-making at various levels. In the case of the Mackenzie Gas Project, consultation and arrangements for regulatory coordination began four years before the relevant major permit applications were even filed with the NEB.
The Quest for Efficient Process
Investors and project proponents are also concerned about uncertain timelines and processes for environmental review and approval, particularly delay and increased expense due to regulatory overlap. Here, regulators and governments have responded by creating joint panels or adopting new processes for energy and environmental approvals.
An early example of this is seen in the approach to the Sable Offshore Energy Project and the related Maritimes and Northeast Pipeline Project.18 The project proponents submitted applications to the Canada-Nova Scotia Offshore Petroleum Board, the NEB, and the Nova Scotia Energy and Mineral Resource Conservation Board. Each regulator was to conduct a public review of both Projects, thus presenting an opportunity for joint public review as a means of streamlining the regulatory process.
The outcome was the Agreement for a Joint Public Review of the Proposed Sable Gas Projects between the Ministers of Environment for Canada and Nova Scotia, the Ministers of Natural Resources for Canada and Nova Scotia, the Chairman of the National Energy Board and the Acting Chief Executive Officer of the Canada- Nova Scotia Offshore Petroleum Board, to coordinate their environmental and socio-economic assessment requirements. The Joint Review Panel consisted of two permanent NEB members, as well as three other appointees by the parties to the Agreement, one of whom also served as a temporary NEB member. While some 60 days of public hearings were held concerning the projects, this very likely pales in comparison to the time and effort that would have been required if separate processes had been undertaken by each of the regulatory agencies involved.
A more recent example of an efficient regulatory process - one for which specific legislative provision is made - is seen in the approach taken to the technical and environmental review concerning the Emera Brunswick Pipeline referred to earlier, which is principally intended to deliver regasified LNG from Saint John, New Brunswick to the Canada-U.S. border. The project was referred to a review panel pursuant to section 25 of the Canadian Environmental Assessment Act (CEA Act). The substitution provisions in section 43 of the CEA Act allow a federal authority such as the NEB, with the approval of the Minister of the Environment, to use its own process for assessing the environmental effects of a project instead of a review panel under the CEA Act. Here, the Minister's approval allowed the NEB's public hearing process to substitute for a separate review panel assessment, which undoubtedly speeded up the decision-making process.19
Still more recently, the federal government has established the Major Projects Management Office (MPMO) to provide overarching project management and accountability for major resource projects in the federal regulatory review process and also to facilitate regulatory process improvements for major resource projects. The MPMO is intended to act as a single point of entry to the federal regulatory process to ensure that all appropriate federal departments are engaged and coordinated. An online project system will allow the regulatory review process to be tracked in an open and transparent manner and the MPMO is presently developing project description guidelines with input from stakeholders. The NEB announced in July, 2008 that it is partnering with the MPMO to improve efficiency and effectiveness of this federal regulatory review process. The MPMO process will apply to all certificate pipelines and international power line applications to the NEB for approval to construct and operate new facilities.
Although applications to the NEB will be processed in the same way as before, project proponents will also have to submit a project description or preliminary information package to the MPMO as well as to the NEB, some months in advance of any formal application. The intention is to improve the regulatory process in the long run; however, navigating one's way through this additional regulatory process could still be challenging, at least initially. It also raises the question as to whether the new process will invite government intervention and an additional layer of bureaucracy rather than speeding up the process.
Whether in respect of applications for approval to construct and operate new facilities, or the evolving field of rate regulation, there is no question that the face of energy regulation in Canada is changing. For those who appear before energy regulators - project proponents, utilities and intervenors alike - this means an increased need to understand the risks and political environment; to plan carefully; to understand the extent of approvals and public consultation required; to appreciate the scope for innovative approaches; and to recognize the need to engage outside advisors to assist in developing a workable plan of execution. All those involved in the process therefore need, as never before, sound counsel to navigate increasingly complicated waters.