TransCanada PipeLines Limited (TCPL) has applied for a declaration that the National Energy Board (NEB) has jurisdiction over its Alberta natural gas system (Alberta System), which is owned by NOVA Gas Transmission Ltd., a wholly-owned subsidiary of TCPL. In part, this move highlights how TCPL intends to competitively position itself for the delivery of anticipated Mackenzie Delta, Alaskan and Northeastern British Columbia gas supply arriving at the Alberta border, and for delivery to markets both within and outside of Alberta.
If the application is approved, it will mean that the entire TCPL system will fall under the jurisdiction of one regulatory authority – namely, the NEB. Ceding jurisdictional authority to the federal regulator represents a significant paradigm shift for the Province of Alberta. This is especially true given the history of the Alberta System and the historic position taken by the Province of Alberta concerning the need to retain control over the pipeline systems directly providing transmission service to Alberta natural gas producers.
Competition and market-based forces facing the gas pipeline industry appear, in part, to have persuaded the Province to reconsider what were once untouchable principles. From a strict legal perspective, the jurisdictional characterization of the Alberta System has been in doubt for several years and, in particular, since the Supreme Court of Canada articulated and has applied its tests to determine whether an otherwise provincial work and undertaking is, in fact, federal in nature and thus subject to the federal (and not provincial) legislative schemes.
Background
The Alberta System is a natural gas pipeline system located within Alberta and currently regulated by the AUC. The Alberta System connects with the TransCanada Foothills System (Foothills System) and the TransCanada Mainline (Mainline). The Foothills System serves markets in the United States, while the Mainline serves markets in Saskatchewan, Manitoba, Ontario, Québec and the United States. Both the Foothills System and the Mainline are owned by TCPL and regulated by the NEB.
An otherwise provincial work and undertaking, such as a pipeline, will fall within federal jurisdiction and become subject to regulation by the NEB if it is part of, or integral to, a federal work or undertaking. (See: United Transportation Union et al. v. Central Western Railway Corporation) In Westcoast Energy Inc. v. Canada (National Energy Board), the Supreme Court of Canada stated that the primary factor in determining whether a work or undertaking is part of, or integral to, a federal work or undertaking is "whether the various operations are functionally integrated and subject to common management, control and direction." There is also case law to support the proposition that an intraprovincial facility that is essential to a federal undertaking will also be deemed to have the necessary nexus to be an integral part of it.
Previously, legal commentators have remarked that, at law, there was no reason that the Alberta System should not have been federally regulated as an interprovincial pipeline. However, the Province of Alberta has historically guarded its constitutional powers over provincial natural resources aggressively. In fact, prior to natural gas deregulation, the Alberta System was initially owned and operated as a provincial crown corporation and, as such, was seen as a key element or "link" to ensure that development of Alberta's provincial natural gas resources were not dependent on extraneous federal government policies. However, after natural gas deregulation, the Alberta System was acquired by TCPL and has since been integrated into the control and operational affairs of the TCPL system. Equally important, the natural gas market has evolved and matured without need of government interventionist policies, thus seemingly alleviating original provincial control concerns.
The Application
On June 17, 2008 TCPL filed a two-phased application with the NEB: Phase I asks for a declaration that the Alberta System is within Canadian federal jurisdiction and Phase II asks for a certificate of public convenience and necessity. Phase II of the application will only proceed if the NEB makes the declaration applied for in Phase I of the application.
In its application, TCPL submits that the Alberta System, the Foothills System and the Mainline are now functionally integrated and share common ownership, management, control and direction. According to TCPL, the Alberta System is essential because without its gas, the Foothills System would have virtually nothing to transport and the Mainline would be completely uneconomic. Therefore, the Alberta System is now part of, or integral to, the interprovincial undertaking of TCPL to transport natural gas to markets within Canada and the United States and should fall under federal jurisdiction.
TCPL further submits that regulation by the NEB will enhance the Alberta System's ability to provide integrated service and facilitate the development, transportation and marketing of natural gas resources within Alberta, Canada and the United States which will lead to more competitive transportation rates. Furthermore, regulation by the NEB will enhance regulatory and economic efficiency. Under current regulation by the AUC, TPCL is prohibited from acquiring, constructing or operating facilities that transport gas across Alberta provincial borders.
Analysis
TCPL has acknowledged that this application "marks a significant and historic event" for the Alberta System. The application can also be viewed as pre-emptive preparation by TCPL in light of mounting anticipation over arctic gas reaching the Alberta border. Although the Mackenzie Gas Project is suffering from numerous delays, the Alaska gas pipeline is gaining serious momentum.
Under regulation by the AUC, the Alberta System is restricted from constructing and operating pipeline facilities outside of the Province. This has meant that separate toll and tariffs for the Alberta System have been necessary and distinct from those relating to the remainder of the TCPL system situated outside of the Province. Regulation by the NEB will allow the potential for tolls to be integrated between the Alberta and the TCPL mainline system, potentially allowing gas originating from distant and northern basins to be more competitive with other pipeline systems. Increased gas flows from the arctic and northern BC on the Alberta system also allows for potential reduction in transportation rates for gas produced in Alberta, thus improving netbacks.
Gordon Nettleton is a partner with Osler, Hoskin & Harcourt LLP practising in the Calgary office's Litigation Department. Gordon specializes in energy regulatory, environmental and business law matters and has significant experience in the oil and gas pipeline and electricity industries. Ryan Rodier is an associate in the firm's Calgary office. His practice focuses on energy regulatory matters. Jessica Ng is an articling student in the firm's Calgary office.
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