By:
Ethan Sinclair The Keystone XL Project (the "Project") proposed by
TransCanada Corporation ("TransCanada") is centre- stage
in the effort of Canada's oil and gas industry to expand export
access to foreign markets. The Project would have the
capacity to deliver up to 830,000 barrels per day ("bpd")
of diluted bitumen from Hardisty, Alberta through Cushing, Oklahoma
to Houston and Port Arthur, Texas. TransCanada has received the
necessary approvals for the Project from Canada's National
Energy Board, but approval from the U.S. Department of State
("DOS"), in the form of a Presidential Permit, to build
and operate the Project has been significantly delayed, in large
part due to public concerns relating to potential environmental
impacts of the Project. To date, the response to the Project in
Washington is mixed, with various American lawmakers voicing strong
support on economic grounds, and others voicing vociferous
opposition to the project primarily on environmental
grounds. On August 26, 2011, after 36 months of regulatory review and
consultation with eight federal agencies and the public, the DOS
released its Final Environmental Impact Statement ("EIS")
on the Project. It was 9 volumes and over 1000 pages in
length. The DOS, in consultation with the Pipeline and Hazardous
Materials Safety Administration, determined that (a) incorporation
of the 57 special conditions with which TransCanada has agreed to
conform would result in a project with "a degree of safety
greater than any typically constructed U.S. domestic oil pipeline
system," and (b) the pipeline would have no significant impact
on most natural resources along the proposed route. The EIS also considered the need to secure sources of crude for
refineries in the Gulf of Mexico, and determined that the Project
was a preferable option to either (i) alternative transportation
methods to move bitumen from Northern Alberta to the Gulf Coast, or
(ii) sourcing hydrocarbon feedstock from other jurisdictions that
are less secure, less reliable, and which are generally
experiencing declining production, including the Middle East,
Africa, Mexico and South America. The EIS states that
"As a result of these considerations, DOS does not regard the
No Action Alternative (i.e. that the Project not be built) to be
preferable to the proposed Project." Although the EIS clearly favoured development of the Project,
that alone is not a final determination of the issue. The DOS was
required to decide whether the Project is in the public interest by
late November, following which a decision on issuance of a
Presidential Permit was expected by year-end. However, early
in November, in response to public concern that a Project
pipeline breach could seriously damage the vast Ogallala aquifer in
Nebraska, and apparently to delay the contentious decision on the
issuance of a Presidential Permit until after the 2012 presidential
election, the DOS requested that TransCanada propose an alternate
route around the aquifer. The EIS had already considered five
alternative routes for the Project and found that all five would
have worse or similar environmental impacts. TransCanada responded
quickly and within days had secured an agreement with the Nebraska
state government, which has since passed legislation approving the
rerouting of the Project around the Ogallala aquifer, and approving
funding for a further environmental study of the proposed alternate
route. TransCanada remains confident that the Project will ultimately
be developed. All pipeline and pump station materials have
been procured, and TransCanada has completed 99% of the necessary
easement acquisitions in Canada and 92% of the easement
acquisitions required in the U.S. In addition to TransCanada's Keystone initiative, Enbridge
Inc. ("Enbridge") is forging ahead with its own plans to
transport Canadian hydrocarbons through the current bottleneck at
Cushing, Oklahoma to the Gulf Coast. In September, Enbridge
announced plans to develop its Wrangler pipeline (800,000 bpd)
which would run from Cushing to the Gulf Coast. While
Enbridge has yet to file a regulatory application for this project,
it is currently assessing market interest and suggests that the
project could be operational by mid-2013. Enbridge also
announced in November that it has purchased from ConocoPhillips a
50% interest in the Seaway Pipeline currently running from the Gulf
Coast to Cushing. Enbridge and its partner, Enterprise
Products Partners, have stated their intention to reverse the flow
of the Seaway Pipeline to carry a capacity of up to 400,000 bpd of
diluted bitumen from Cushing to the Gulf Coast. There is little doubt that Canada's oil sands will play an
increasingly important role in U.S. energy security. To effectively
undertake that role will require improved access of Canadian
bitumen and heavy crude to U.S. refineries on the Gulf Coast.
It is uncertain how quickly the DOS will undertake further
assessment of a proposed alternate Project route. Should
TransCanada be denied a Presidential Permit, the Enbridge
initiatives, together with initiatives to expand Canadian
hydrocarbon access to Asian markets via Canada's west coast,
will become increasingly important to the continued expansion of
Canada's oil sands industry. GOWLINGS UPDATE ON ONTARIO'S FEED-IN TARIFF
(DECEMBER 2011) In the fall of 2009, the government of Ontario enacted the
Green Energy and Green Economy Act, 2009 (the "Green
Energy Act") with the dual objectives of sponsoring the
development of renewable energy generating capacity within the
Province and simultaneously facilitating the development of
Ontario's "green" economy. Ontario's Feed-in Tariff program (the "FIT") was
ground-breaking for Canada, representing a rare suite of new
business opportunities for companies to become involved in the
development of Ontario's generation, transmission and
distribution systems at the ground level. Since 2009, the FIT Program has evolved –undergoing
substantial changes as regulators have assessed market response,
worked through operational challenges and improved the legal
wording of the original program document set. In 2009, the Ontario Power Authority (the "OPA") was
granted the authority to create the FIT program. Since the
program began, over 2,500 FIT projects and 11,000 microFIT projects
have been offered contracts. To be eligible to participate in the FIT program, proposed
generating facilities must (i) be generating electricity from one
or more renewable sources and delivering that electricity through a
meter, (ii) be located in the Province of Ontario, (iii) in the
case of solar (PV) projects that are not rooftop facilities and
have a contract capacity greater than 100 kW, not be located on
certain agricultural classes of land, (iv) in the case of
capacity allocation exempt facilities, be deemed by the OPA to be
capable of connecting at the proposed connection point, (v) not be
an existing generating facility (although some limited exceptions
apply for upgrades and expansions), and (vi) not have had a power
purchase agreement in respect of the facility. Upon acceptance of a FIT application, the OPA will determine
whether the applicable transmission or distribution system has, or
will have, sufficient connection resources to accommodate the
connection. If there are sufficient system resources to
accommodate the connection, a FIT Contract will be awarded.
If there are approved plans to accommodate the connection of the
project, but such resources will not be in service prior to the
milestone date for commercial operation, the project applicant will
be added to the production line. If there are no such
distribution resources, actual or planned, the applicant will be
subjected to an economic connection test and added to the "ECT
pool". The economic connection tests were to be run at
least every six months for each region of the province but there
have been substantial delays. Under the terms of the FIT Contract, project developers are
required to provide evidence that they own or hold sufficient lease
or easement rights to the lands on which generating facilities are
located for at least the term of the FIT Contract itself (20-40
years depending on the type of project). In many cases this
evidence takes the form of a fully developed lease or easement
agreement. In other instances, site-acquisition options are
proffered. In addition to establishing project construction timelines,
detailed power delivery obligations and pricing models, the FIT
Contract also requires solar facilities and certain wind facilities
to achieve a minimum percentage of domestic content. The
percentages are as follows: Wind Projects over 10 kW Minimum Domestic Content Level Year of Commercial Operation 25% 2009 – 2011 50% 2012 and later Solar PV Projects over 10 kW and less than or equal
to 10,000 kW Minimum Domestic Content Level Year of Commercial Operation 40% 2009 – 2010 60% 2011 and later Where 10% or more of the equity in a project is held by an
aboriginal community, that project may be eligible to have an
amount added to the price payable by the OPA pursuant to the terms
of the FIT Contract. Similarly, projects with substantial
ownership by individuals resident in Ontario, a registered charity,
a not-for-profit organization or a co-operative corporation may
also be eligible to receive the $0.01/KWh Community Price Adder for
wind and solar projects. There are no residency requirements for applicants (other than
with respect to the price-adder for aboriginal and the Community
Price Adder discussed above). The Green Energy Act requires the Environmental
Commissioner to provide yearly reports on both energy conservation
and greenhouse gas emission reductions in Ontario. The report
on energy conservation is required to cover Ontario's
initiatives over the last year and describe the progress made to
meet targets, reduce consumption, and increase efficiency. The
Environmental Commissioner is also charged with identifying
barriers to the development and implementation of conservation
measures. It is worth noting that the Green Energy
Act mandates that the government of Ontario be guided by
certain principles in the construction, acquisition, operation and
management of government facilities. Government will be
required to have knowledge of greenhouse gas emissions associated
with its facilities and ensure energy efficiency,
environmentally and financially sound investments, and use of
renewable energy sources. As a result of these requirements,
substantial new opportunities will exist to provide products and
services to the Ontario government and its various
agencies. Unless waived, the OPA's unilateral right to terminate the
FIT Contract expires upon the issuance of a notice to proceed with
project construction. In August of 2011, FIT contract holders were given an
opportunity to have the OPA's termination rights under section
2.3(a) of the FIT Contract waived. If the Supplier's
renewable fuel was solar or wind power, the waiver would have
terminated if a Supplier failed to submit a Domestic Content Plan
(specifying local content obligations under the FIT Program) to the
OPA by November 30, 2011. The difficulty in obtaining a renewable energy approval also led
to the OPA offering to amend contracts of all FIT counterparties
who have yet to reach commercial operation. Throughout
February and March of 2011, the OPA contacted FIT suppliers
regarding the execution of an amending agreement to extend their
milestone date for commercial operation by up to one year.
Suppliers were required to surrender certain Force Majeure claims
and rights in order to benefit from the extension. On February 9, 2011, the OPA indicated that FIT Applicants who
submitted their capacity-allocation exempt FIT applications on or
after December 8, 2010, would be required to obtain a Connection
Impact Assessment from their local distribution company
("LDC") once a contract is issued. The assessment
will determine the impact of the project on the electricity system
and provide details on the cost and time involved in connecting the
project. microFIT – Requirement for Grid Capacity
– February 9, 2011 In February of 2011, the OPA made a rule change requiring
all microFIT Applicants who submitted their applications on or
after December 8, 2010, to request and receive an offer to connect
from the applicable LDC before a conditional offer is issued.
Under the amended microFIT Rules, the OPA is required to notify the
applicant of this obligation after completing its review of
eligibility requirements. Constrained microFIT Applicants – August 19,
2011 Pursuant to a direction by the Minister of Energy on August 19,
2011, upon written notice to the OPA, microFIT Applicants that have
been unable to connect their project ("Constrained
Applicants") will be given an option to relocate their project
to another location in Ontario. The directive also applies to
Constrained Applicants with up to 50 constrained projects with a
combined nameplate generation capacity of no more than 500
kW. Constrained Applicants will also be given the option to assign
their conditional offers to other Constrained Applicants so long as
those parties are Eligible Participants under the microFIT Eligible
Participant Schedule. MicroFIT industry participants await the
issuance of detailed rules and guidelines by the OPA at this
time. The FIT and microFIT programs are currently undergoing their
two-year review pursuant to the FIT and microFIT Rules. This
review will consider the following: The review period began on October 31, 2011, and will run until
December 14, 2011.
TRANSCANADA'S KEYSTONE XL PIPELINE: AN UPDATE
BACKGROUND
LATEST DEVELOPMENTS
ENBRIDGE INITIATIVES
CONCLUSION
By:
Thomas J. Timmins,
Amanda Cohen and
Neeta SahadevFIT Program Highlights
Grid Capacity and the Economic Connection
Test
The FIT Contract
Domestic Content Obligations
Opportunities with Government Entities
Recent Changes Made to the FIT and microFIT Programs
(December 2011)
Waiver of Termination Rights – August 2,
2011
Extension for Commercial Operation Dates –
February 9, 2011
Rule Change for Capacity Allocation Exempt Applications
– February 9, 2011
FIT and microFIT Program Review – October 31,
2011
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