Use the Lexology Getting the Deal Through tool to compare the answers in this article with those from other jurisdictions.
Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.
Projects in the energy sector are regulated by both provincial and federal agencies.
In most provinces, the exploration for development, production and operation of energy is regulated provincially. Provincial agencies conduct environmental assessments; manage surface rights; issue approvals, permits, licences and leases; monitor for compliance; oversee intra-provincial transportation; enforce safety procedures; and oversee abandonment, reclamation and remediation.
Where energy projects involve inter-provincial, national, international or offshore matters, federal agencies also have authority. For example, the National Energy Board (NEB) regulates inter-provincial and international energy imports and exports and the construction and operation of interprovincial and international pipelines, and the Canadian Environmental Assessment Agency requires assessments for projects that are considered to be federal in nature.
The provincial governments and federal government jointly regulate offshore oil and gas development in Newfoundland and Labrador and Nova Scotia. The NEB has authority over all oil and gas exploration activities in Nunavut, while authority in the Northwest Territories (NWT) is split between the NEB and the government of the NWT.
Access to infrastructure
Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?
In each province, the relevant regulators have the authority to issue ‘common carrier orders’ to facilitate access to a particular pipeline upon application by an interested party.
In Alberta, for example, an application by an interested party for a common carrier order must demonstrate that the proposed access entitlement is the only economically feasible way to exploit the resource, the most practical way to transport the substance in question, or a clearly superior option in regard to the environment: see Alberta Energy Regulator, Directive 065: Resources Applications for Oil and Gas Reservoirs. Further, applicants must also demonstrate that they have made all reasonable efforts to obtain access to the subject pipeline on a market basis but have been obstructed by the pipeline’s owner.
Federally regulated oil pipelines in Canada operate as common carriers under the National Energy Board Act (NEBA), RSC 1985 c.N-7. The NEBA imposes a duty on oil pipeline operators to receive, transport and deliver all oil offered by means of its pipeline. Natural gas pipelines are contract carriers and are not required to accept all gas offered by a supplier, but the NEB has authority to direct a pipeline operator to offer capacity to a supplier.
Oil and gas developers also utilise Canadian railways to transport crude oil to market. In Canada, the federally-regulated railways are common carriers and are required to accept crude oil for transport.
What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?
Typically, administrative decisions can be appealed or judicially reviewed on questions of law, jurisdiction or procedural fairness. Canadian courts are generally deferential to specialised tribunals or government-decision makers, especially when the decision appealed from involved an exercise of discretion. As such, a decision will likely be upheld if it was justified, transparent and intelligible, and fell within a range of possible, acceptable outcomes defensible. Certain questions of law are reviewed on the correctness standard.
The legislation governing each energy regulator generally permits a party to seek a review and variance of the regulator’s decision from the regulator itself. Such a request is usually pursued in parallel with the court process, where the court process will be stayed until the review and variance is decided.
What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?
In British Columbia, Alberta, Saskatchewan and Manitoba, hydraulic fracturing operations are permitted and are regulated by the relevant provincial regulator. Regulations regarding safety and casing requirements differ in each jurisdiction.
There is a moratorium on hydraulic fracturing in Newfoundland, New Brunswick and Nova Scotia. Other provinces indicate that projects involving hydraulic fracturing will be considered on a case-by-case basis.
Other regulatory issues
Describe any statutory or regulatory protection for indigenous groups.
The rights of Canada’s indigenous peoples are entrenched in Canada’s Constitution. These rights may be founded on treaties or historic use and occupation. Government conduct that infringes established rights and titles of Canada’s indigenous peoples is prohibited unless it is necessary for a valid legislative objective and involves as little infringement as possible. Where the federal or provincial government contemplates conduct that has the potential to adversely impact asserted or proven aboriginal/treaty rights or title, it has a duty to consult and, where appropriate, accommodate indigenous peoples. The scope of consultation is commensurate with the strength of the asserted right and the severity of the potential impact. Consultation is aimed at finding means to avoid, minimise and mitigate any potential impact on the right or title to achieve an appropriate balance between the indigenous group’s interest and the societal benefit of the intended conduct. Where consultation is inadequate, indigenous groups have recourse to the courts. Where the court is satisfied consultation was insufficient or not undertaken in good faith, it has broad jurisdiction to grant appropriate remedies, which may include quashing the intended project.
Many energy regulators involve indigenous groups in their hearing processes, including evidence as to whether or not the government has met its duty to consult in the circumstances. This also regularly includes project proponents filing evidence as to their own engagement with indigenous peoples in planning and developing the project.
As noted above, natural resources underlying First Nation reserve lands are managed and regulated on behalf of First Nations by the federal government.
Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.
Foreign investment is regulated by the Investment Canada Act, RSC 1985, c.28. The acquisition of a Canadian business that has an enterprise value in excess of a specified amount must be reviewed by the federal government. Investment approval will be granted if the foreign investment is found to be a ‘net benefit to Canada’, taking into consideration the impact of the investment on various economic factors.
Investments by foreign state-owned enterprises are subject to lower threshold triggers and additional review requirements. Such reviews examine corporate governance and the reporting structure of the state-owned enterprise against Canadian standards for governance. Other considerations include whether the business will continue to operate on a commercial basis and whether there are reasonable grounds to believe the transaction ‘could be injurious to national security’.
Although not specific to foreign investment, certain transactions that exceed the threshold set forth in Part 9 of the Competition Act (RSC 1985, c. C-34) need to be approved by the Canadian Competition Bureau prior to closing.
What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?
Occupational health and safety is regulated provincially. As an example, in Alberta, penalties range from C$10,000 to C$1 million, or more for continuing contraventions or offences, or imprisonment of up to 12 months: see Occupational Health and Safety Act, RSA 2000, Chapter O-2 (Alberta) at sections 40.3 and 41. However, charges can also be laid under the Criminal Code, which imposes criminal liability on persons, including corporations, who direct the work of others, and whose failure to take reasonable steps to prevent bodily harm to those persons arising in the course of that work results in injuries or death: see Criminal Code RSC 1985, Chapter C-46 at section 217.1.
The environment is regulated both provincially and federally. Environmental liabilities range from administrative penalties (with no charge) to fines (with the charge of an offence) of tens of thousands of dollars to millions of dollars or imprisonment or both. Most environmental legislation provides for the liability of directors and officers where a corporation commits an offence and the director or officer authorised, assented to, acquiesced in or participated in the commission of the offence: see Environmental Protection and Enhancement Act, RSA 2000, Chapter E-12 at sections 232 and 237.
Companies may also face civil actions based in contract or tort, as a result of health, safety or environmental incidents.
Companies in the energy sector must also be mindful of their obligations under the Extractive Sector Transparency Measures Act, SC 2014, c 39, s 376, as well as the Corruption of Foreign Public Officials Act, SC 1998, c 34.