TRENDS IN ENERGY REGULATORY LAW

Presentation to CBA Nat Resources, South Section Calgary, Alberta

March 13, 2013

Presented by: Bernard J. Roth

Trends in Facilities Regulation

• New Alberta Energy Regulator

• The Federal Budget Legislation

Alberta Non-Utility Oil and Gas Facilities

• 2010 – government appoints Regulatory Enhancement Task Force to examine how Alberta’s regulatory system for energy could be improved

• December 2010 Task Force report recommended creation of single regulator

• Resulted in Bill 2 – Responsible Energy Development Act

• Enacted on December 10, 2012 and comes into force on proclamation – Summer of 2013 (pending regulations)

• Creates new regulatory body - the Alberta Energy Regulator (AER)

AER Structure

• Board of Directors with a chair and at least two other members

• CEO of the AER cannot be Board member

• Hearing Commissioners appointed from roster of Commissioners (including a Chief Commissioner) to sit on hearing panels • Commissioners cannot be the CEO or Board member

• Hearing Commissioners are independent of Board and CEO but supported by AER staff

Responsible Energy Development Act

• Alberta Energy Regulator will regulate “energy resource activities” being upstream oil and gas, oilsands and coal

• Mandates of ERCB and AlbertaEnvironment and Sustainable Resources Development will be rolled into the Regulator and ERCB will be dissolved

• ESRD will continue to regulate environmental matters associated with non-energy resource activities but all matters under EPEA, Water Act and Public Lands Act relating to energy resource activities will be handled by the Regulator

RDEA, cont.

• Single regulator for project proponents for all permits, dispositions, approvals, licences etc. and environmental assessments, with exception of: • acquisition of mineral rights; which will still be administered by Alberta Energy

(with exception of Part 8); • surface rights which will still be administered by the Alberta Surface Rights

Board; and • facilities of regulated utilities still regulated by the AUC under the Gas Utilities

Act, the Electric Utilities Act, Hydro and Electric Energy Act and the Public Utilities Act.

REDA – Review and Reconsideration

• Persons who filed SOCs and are directly affected by EPEA, Public Lands Act and Water Act approvals and licences no longer have right of appeal to the Environmental Appeal Board or the Public Lands Appeal Board – nor do project proponents whose applications are denied or who are unhappy with terms and conditions of approvals and licences

• May apply for review of decision by the Regulator without a hearing • Regulator reviews its own decision – internal process – decision may be made

with or without hearing

• May apply for reconsideration of any decisions regardless of whether there was a hearing which is again internal

REDA - Appeals

• Appeal from Regulator’s review decision only to Alberta Court of Appeal, with leave, on questions of jurisdiction or law (i.e. not on questions of fact or mixed fact and law)

• Appeals of all decisions including those made on a review or reconsideration and even though no hearing

Federal Budget Legislative Changes

• Attempt to keep federal regulation closer to scope of core federal jurisdiction under the constitution

• Environment not addressed in constitution and limits of federal jurisdiction never clear

• Budget legislation amendments appear to be directed at Trojan Horse concern

• Environmental regulatory powers limited to area of core federal competency and environmental assessments powers designed to focus on major projects and to avoid duplication of provincial assessments

Federal Fisheries Act

• New provision for equivalency agreements with provinces and suspension of provisions of federal act where provincial legislation is agreed to be equivalent

• Proclamation pending on further amendment to s.35(1)prohibitions against HADDs (harmful alteration, disruption or destruction of fish habitat) to cover “serious harm to fish that are part of a commercial, recreational or Aboriginal fishery”

Navigable Waters Protection Act

• Again, pending proclamation will only apply to scheduled water bodies, not all navigable waters

• Will be major rivers like North and South Saskatchewan as will as Athabasca

Canadian Environmental Assessment Act

• Triggers are no longer federal approvals, but “designated projects” specified in regulations

• Designated projects are major projects (i.e., those on the old Comprehensive Study List)

• Environmental effects to be considered are generally limited to areas of federal jurisdiction: • Fish and fish habitat • Aquatic species at risk • Migratory birds • Federal lands • Transboudary effects • Effects on aboriginal peoples

CEAA, cont.

• Projects screened to determine whether any environmental assessment will be required

• Now only two types of assessment – standard assessments and review panels

• Environmental assessments performed by NEB, CNSC or CEAA Agency

• Time limits imposed, 45 days to determine if assessment required, 60 days to determine if it is a standard review or a review panel 12 months for a standard review, 24 months for a review panel and 15 months for an assessment by the NEB.

CEAA, cont.

• NEB and Review Panel hearing right of participation is now limited to “interested parties” determine by a “directly affected” test same as Alberta test for participation which ensures natural justice

• Ability to substitute provincial process where there is a standard review such that federal government will rely on results of provincial assessment in making determinations under CEAA

• There is also the ability to exempt a project from the CEAA in deference to a provincial assessment and significance determination

Trends in Utilities Regulation

• Performance based rate making for provincial utilities

• Complaints based regulation for provincial oil pipelines

• Beyond the regulatory compact for federal oil and gas pipelines

Performance Based Regulation for Alberta Utilities (Rate Regulation Initiative)

• Intended to depart for COS regulation

• Rates set for 5 years using past COS historic bench mark

• Rates adjusted annually for various factors to create incentive for efficiency over 5 year term

• Subject to ROE caps and floors during 5 year term of 5 % in any one year or 3% over two years

• After 5 years open to bench mark again on COS

• Replicates what some settlements were doing without precondition of having a settlement

Beyond the Regulatory Compact for NEB Pipelines

• What to do with gas pipelines that are out of the money?

• How to handle oil pipelines that are in the money?

Gas Pipelines

• The TransCanada restructuring application

• Extending the NGTL System in BC

Oil Pipelines

• History of migration to negotiated tolls

• The role of cost of service in the context of contract pipelines

• What happens when there is disagreement on contract rates on new or existing capacity being offered by contract

The preceding presentation contains examples of the kinds of issues companies dealing with energy

regulatory law could face. If you are faced with one of these issues, please retain professional assistance as each

situation is unique.

Questions? Bernard Roth +1 403 268 6888 bernard.roth@dentons.com