In the July 2012 edition of this Oil and Gas Bulletin, the provincial regulatory streamlining reforms proposed under the Regulatory Enhancement Project were discussed, with a focus on the appointment of a single energy regulator. That article may be found at http://www.blg.com/en/home/publications/Documents/publication_3089.pdf.

On October 24, 2012, in what has been referred to as a “bold step that will improve the energy regulation system for landowners, industry and the environment”, and “laying the foundation for the next 50 years of responsible energy development in the province”1, Bill 2, Responsible Energy Development Act (“Bill 2”), received first reading in the Alberta Legislature. If passed, Bill 2 will create a single provincial regulator for upstream oil, gas, oil sands and coal development (“Energy Developments”), which had been one of 6 recommendations made by the Regulatory Enhancement Task Force (the “Task Force”) in its second of 3 reports, dated December 2010.

The focus of this Bulletin is to briefly summarize some of the highlights of Bill 2, with occasional reference to the Government of Alberta’s accompanying News Release (the “News Release”) and Backgrounder (the “Backgrounder”).2

HIGHIGHTS OF BILL 2

Under Bill 2, a single regulator, the Alberta Energy Regulator (the “Regulator”), will assume the Energy Development regulatory functions currently administered by the Energy Resources Conservation Board, and Alberta Environment and Sustainable Resource Development (“AESRD”), from the application stage to project reclamation. The passage of Bill 2 has the potential to ensure that there is a very effective and comprehensive regulatory scheme for the entire energy industry.3

Under Bill 2, the mandate of the Regulator will be to provide for the efficient, safe, orderly and environmentally responsible development of Energy Developments in Alberta, and to regulate the disposition and management of public lands, the protection of the environment, and the conservation and management of water, including the wise allocation and use of water.4  This mandate will be carried out in accordance with specified legislation, including the Oil and Gas Conservation Act, the Oil Sands Conservation Act, the Pipeline Act, the Public Lands Act, the Environmental Protection and Enhancement Act and the Water Act.5

It is claimed in the News Release that in the event Bill 2 is passed, a more effective and efficient system will ensue for industry and landowners, which will build on Alberta’s long-standing commitment to the environment. Benefits to the economy of both Alberta and Canada, as well as the maintenance of the social license to operate, are also cited in support of Bill 2.

Industry is said to benefit since a one-window approach to project applications will be implemented, thereby creating a clear process. Other stated benefits are that project applications may be consolidated or combined, and the Regulator will have increased decision making flexibility.6

Landowners are also said to benefit since a voluntary registry will be created to register private surface agreements, which can then be enforced, parties may be required to participate in an alternative dispute resolution process, and landowners who are adversely and directly affected will have a mechanism to state their concerns.7

According to the News Release, the arms-length single Regulator will be operational by June 2013, which is consistent with the timing previously announced by the Alberta Government.8

POTENTIAL ISSUES REGARDING BILL 2

a) Repeal of the ERCA

Section 112 of Bill 2 repeals the Energy Resources Conservation Act (the “ERCA”). Interestingly, nowhere in Bill 2 is section 3 of the ERCA re-introduced, obligating the Regulator to give consideration to whether a project is in the public interest when conducting a hearing, inquiry or investigation. However, under Bill 2, broad powers exist for the making of regulations, which could include mandatory consideration of public interest.9

There are other sections of the ERCA which have not found their way into Bill 2. For example, section 26, which affords a person standing where a decision on an application may directly and adversely affect the rights of that person, has not been re-introduced. Instead, where a person who is directly and adversely affected by an application files a statement of concern, the Regulator shall decide, in accordance with rules yet to be made, whether to conduct a hearing, but shall conduct a hearing where required by one of the listed energy statutes, or by rules or regulations not yet made.10

b) Environmental Responsibility v. Resource Development

In terms of the balance between environmental responsibility and resource development, Environment and Sustainable Resource Development Minister Diana McQueen was cited in the News Release as stating that “[a]s we grow, we must continue to find the right balance between environmental management and resource development to ensure Alberta and Canada remain global leaders on both fronts” and that “[t]hrough this regulator, we are taking a new approach to how we develop our energy resource while maintaining our strong environmental outcomes.”

It is claimed that under Bill 2, the single Regulator will be able to provide an important balance to the environment, since it will have the ability to assess higher fines than before, penalties and fines will be aligned across statutes, the courts will also have increased fines at their disposal for companies which are not operating in accordance with agreements, and the environmental legislation will remain as stringent as it was before.11

It remains to be seen how effectively the seemingly competing objectives of environmental responsibility and resource development are co-managed, and whether criticisms will be legitimized which have suggested that the implementation of a single Regulator may remove some environmental checks and balances and shift the role of the Regulator to one of simply permitting. On the other hand, there may ultimately be reason to argue that resource development has been unjustifiably stifled. Not surprisingly, there is little in the way of guidance within Bill 2 as to how exactly this delicate balance will be properly maintained.

c) Regulator Independence

There appear to be a number of significant matters which have been left to regulations not yet made, thereby escaping legislative debate.12 For example, in its December 2010 Report, the Task Force had recommended the establishment of a Policy Management Office to act as an interface between the policy development level (comprised of the policy functions of Alberta Energy and AESRD) and the policy assurance level of the new system (of which the single Regulator is a part). As set out in the July 2012 edition of this Oil and Gas Bulletin, the extent of interaction between the policy development and policy assurance functions could threaten the single Regulator’s ability to render independent quasi-judicial decisions free from government influence. Independence is a key factor in Alberta’s current regulatory system and if lost, could impact the government’s ultimate goal of becoming more competitive so as to attract investment. It was hoped that the legislation addressing the creation and functioning of the Policy Management Office would be informative as to the degree of interaction between the policy functions of Alberta Energy and AESRD, and the regulatory functions of the single Regulator. Unfortunately, notwithstanding its mention in prior Task Force reports (including having been recommended), as well as in the Backgrounder 13, there is no mention of the Policy Management Office in Bill 2.

A similar issue arises with respect to section 67 of Bill 2, which provides that when the Minister considers it appropriate, the Minister may by order give directions to the Regulator for the purposes of (a) providing priorities and guidelines for the Regulator to follow in the carrying out of its powers, duties and functions, and (b) ensuring the work of the Regulator is consistent with the programs, policies and work of the Government in respect of energy resource development, public land management, environmental management and water management. As a result of this potential for ministerial intervention, the issue of independence of the single Regulator is again raised.

CONCLUSION

In addition to Bill 2, other recent initiatives have been undertaken in furtherance of the Province’s plan to manage its resources in an integrated manner, including the creation of the Lower Athabasca Regional Land Use Plan, which came into effect September 1, 2012, and the announcement of the provincial arm’s-length environmental monitoring agency, on October 17, 2012. These, combined with the concurrent federal streamlining initiatives and other legislative reforms, have resulted in significant and sweeping regulatory reform which, arguably, is unprecedented in Alberta’s Energy Development history.