Canada: The Energy Regulation And Markets Review


Canada is a federal state comprising 10 provinces (Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan) and three territories (Northwest Territories, Nunavut and the Yukon). The respective powers of the various levels of government are set out in the Constitution Act 1982.

Canada is a common law jurisdiction, with the exception of the province of Quebec, which operates under the Civil Code of Quebec. Each province has its own provincial court of general jurisdiction and an appellant court. The jurisdiction of Canada's Federal Court is limited to specific matters under federal jurisdiction and appeals or judicial review applications from federal tribunals. Canada operates a unitary system of courts in which all cases can ultimately be appealed to the Supreme Court of Canada.

The provinces have primary responsibility for energy regulation through their jurisdiction over local works and undertakings, non-renewable natural resources and electrical energy. The provinces exercise jurisdiction through legislative enactments, various forms of delegated legislation and through independent energy and utility commissions. Provincial legislation and tribunals also govern most environmental matters pertaining to the development of energy projects.

The federal government has jurisdiction over international and inter-provincial trade and commerce, which includes authority over international and inter-provincial transmission lines and energy exports. The federal government also has jurisdiction over nuclear safety, aboriginal affairs, and a number of environmental matters that affect energy projects.

For purposes of expediency, this chapter will discuss the regulation of energy at a general level with illustrative examples drawn from various Canadian jurisdictions.

i Canadian energy sector


The power sector in Canada is principally regulated by the provinces and markets are regional in nature. Most electricity trade is intra-provincial or north–south, between provinces and neighbouring US states; there is relatively little east–west trade between provinces.

Two provinces, Alberta and Ontario, restructured their electricity markets, albeit with differing success. In the mid-1990s, Alberta deregulated generation, mandated open access for regulated transmission and distribution and introduced a real-time electricity spot market. Alberta now has a fully competitive wholesale and retail electricity market.

In 1998, Ontario unbundled transmission, generation and dispatch, and in 2002 it introduced fully competitive wholesale and retail markets. Deficiencies in Ontario's market design and a confluence of other market conditions and political pressures, however, brought about a partial closing of the Ontario market. Today, Ontario operates under a hybrid structure where there is nominally wholesale and retail competition, but a large amount of generation remains regulated or subject to long-term governmentbacked contracts. The remaining provinces have more traditional government-owned vertically integrated utility structures, which offer bundled services at regulated rates.

Some provinces – for example, British Columbia, Quebec and Nova Scotia – have limited generation opportunities for independent power producers, largely in the renewable sector.

The most significant developments in the power sector centre on investments in renewable or clean generation and infrastructure renewal and upgrades. Two years ago, Ontario launched the most ambitious renewable feed-in-tariff (FIT) programme in North America. Other provinces have followed suit, albeit on a smaller scale. A number of provinces are also investing in and constructing major transmission and other infrastructure to facilitate economic and resource development, access renewable resources (wind, hydro) and facilitate export to the United States. Alberta and Ontario have launched competitive processes to develop major transmission projects, which are attracting foreign companies.

Natural gas

The Canadian gas sector, by comparison, has traditionally been characterised by more national east‑west trade. Most gas production is in the western Canadian sedimentary basin and gas is shipped via inter-provincial pipelines to eastern Canada and the northeast United States. Recent non-conventional shale gas discoveries in the midwestern and north-east United States are transforming the Canadian gas industry. Natural gas prices have plunged in North America, west-to-east pipeline throughput has substantially fallen and plans are underway to satisfy eastern Canadian demand from the United States.

As a result, western Canadian producers are eyeing opportunities for new markets and making plans to export liquefied natural gas ('LNG') to Asian markets from Canada's west coast. This will require the development significant infrastructure to transmit the natural gas to the west coast, liquefy it and ultimately ship the LNG to foreign markets.


As is the case with natural gas, the majority of Canadian oil production is in the Canadian sedimentary basin. In particular, Alberta's oil sands contain some of the world's largest oil reserves. These reserves have been attracting significant investment and, as a result, the forecast is for a steep increase in Canadian oil production. The vast majority of Canadian oil production is exported via international pipelines to the midwestern United States; however, there is currently a significant price differential between the price paid for oil delivered to the Midwest (West Texas Intermediate) and the world oil price (Brent).

In order to access the world price for Canadian oil, pipelines are being proposed that will connect Canadian production with hubs that provide for export outside of North America and thereby attract world oil prices. One such proposal is TransCanada Corp's Keystone XL pipeline. Keystone XL was recently denied a Presidential permit by the United States, which has stalled its development. TransCanada is working on reviving the project, but in the meantime a second pipeline, Enbridge Inc's proposed Northern Gateway oil pipeline, is being proposed to connect Alberta production with Canada's west coast for export to the Asia-Pacific markets. Such access to Asia-Pacific markets would fundamentally change the balance of future oil trade between Canada and the United States.


i The regulators

The National Energy Board ('the NEB') establishes regulatory policies for energy matters under federal jurisdiction. The primary area of NEB's activity is the regulation of Canada's interprovincial oil and gas pipelines owned by TransCanada Pipelines Limited and Enbridge Pipelines Inc. The NEB also has regulatory responsibility for the construction and operation of international transmission lines and the export of natural gas, oil and electricity.

Provinces have authority over the exploration and development of energy resources. This function may be assigned to an independent regulatory tribunal (e.g., Alberta's Energy Resources Conservation Board) or may be under the direct control of a government ministry. Oil and gas exploration in frontier and offshore areas are regulated either by bodies created by federal or provincial management agreements (e.g., the Canada–Newfoundland and Labrador Offshore Petroleum Board) or by the NEB. Canada's energy sector is also regulated by provincial utility regulators that are responsible for facilities that lie completely within the borders of any single province.

This jurisdiction can include diverse matters such as facility siting, rate setting, utility divestitures, retail issues and consumer complaints. In some provinces, energy regulators' authority is limited to responsibility for energy resources and energy utility regulation (e.g., the Ontario Energy Board); in other provinces, utility regulators also have jurisdiction over other sectors such as automobile insurance, railways and water utilities (e.g., Nova Scotia Utility and Review Board).

Energy and utility commissions are established through federal or provincial legislation and their members are appointed by the relevant government, usually for fixed terms. They act as quasi-judicial tribunals, independent of the businesses they regulate.

Although in large part they exercise their powers free of interference from government, their jurisdiction is set out in legislation that may be amended by the relevant legislature. By statute, some tribunals are also subject to direction from provincial or local governments. These tribunals generally exercise their powers through policy instruments (such as codes, rules and generic decisions), licensing authority and individual decisions.

The decisions of Canadian regulatory tribunals are generally subject to appeal or judicial review by the courts – the Federal Court in the case of the NEB and other federal bodies, and the provincial superior courts in the case of provincial energy and utility commissions. In some jurisdictions the right to appeal is not automatic but requires leave of the court. Appellate judicial review is generally limited to questions of law or jurisdiction, procedural unfairness, bad faith or unreasonableness on the part of the regulator. Federal and provincial courts tend to give deference to regulators on matters of law that are intertwined with economic policy and rate setting that lie within a regulators' area of expertise, but give less deference on matters of law that are of general importance.

There is also federal and provincial jurisdiction over anti-competitive practices in the energy sector. The Competition Bureau reviews anti-competitive practices, both criminal and civil, under the federal Competition Act. Criminal offences are prosecuted by the Attorney General before the criminal courts; the federal Competition Tribunal has the power to issue remedial orders for reviewable civil matters (e.g., abuse of dominance and tied selling). At the provincial level, bodies such as Ontario's Market Surveillance Panel and Alberta's Market Surveillance Administrator monitor activities within competitive energy markets and the conduct of market participants to identify abuses of market power, gaming and market deficiencies or design flaws.

ii Regulated activities

At the federal level, approval from the NEB is required to construct and operate an interprovincial or international oil and gas pipeline, an international power line or any inter-provincial power line designated by the federal government, and any additions to an existing pipeline or transmission line that is under federal jurisdiction. In determining whether a project should proceed, the NEB reviews, among other things, its economic, technical and financial feasibility, and the environmental and socio-economic impact of the project.

The NEB regulates tolls and tariffs for oil and gas pipelines under its jurisdiction to ensure they are 'just and reasonable' and that there is no 'unjust discrimination' in tolls, services or facilities. Pipelines under the Board's jurisdiction are divided into two groups that tailor the degree of financial regulation to the size of the regulated operations.

Group 1 consists of major oil and gas pipelines, which are generally subject to ongoing regulatory oversight by the NEB. Some smaller Group 1 facilities and Group 2 pipelines are regulated on a complaint basis.

The NEB also regulates the export and import of energy. The export and import of natural gas is authorised under either long-term licences of up to 25 years (which require a public hearing and approval by the federal Cabinet) or short-term orders for a maximum of two years. Oil exports are authorised by short-term orders for periods of less than one year for light crude oil and less than two years for heavy crude oil.

With respect to electricity, the NEB has issued permits and licences for as short a period as three months and for as long as 30 years, with the average being for 10 years. In reviewing applications for electricity exports, the NEB applies a 'fair market access' policy under which exporters must afford Canadian purchasers who have demonstrated an intention and ability to buy electricity for consumption in Canada an opportunity to purchase electricity on terms and conditions as favourable as those offered to an exporter customer. The NEB does not regulate imports of oil or electricity.

Provinces regulate oil and gas pipelines and facilities that lie completely within their borders; this includes regulatory authority over the construction of new infrastructure and the setting of 'just and reasonable' rates for service. Electricity generation, transmission, distribution and sale are all broadly regulated. Licences to generate, transmit, distribute or sell electricity are required from provincial regulatory authorities. Approvals or permits to construct generation, transmission or distribution facilities must also be obtained from provincial energy commissions or from a variety of provincial and municipal authorities. Rates for transmitting and distributing electricity are also set by provincial regulators, as is generation in the case of those provinces with vertically integrated structures.

In addition, a range of other authorisations may be required from federal, provincial and local authorities. These will vary depending on the facility's scale, physical location, fuel type, discharge characteristics and the potential environmental effects. For major projects, the most significant approvals required are generally under federal or provincial environmental assessment legislation. The environmental assessment process may be consolidated or coordinated with the project approval process, although this can vary depending on the type of project and jurisdiction involved. Provincial approvals are often required for air and noise emissions, water intake and discharge, storm sewer management, archaeological assessment and for decommissioning and clean-up of contaminated sites. Local land use approvals required may include official plan and by‑law amendments, sewer use, building permits and servicing easements. In April 2012, the federal government introduced a plan to streamline the federal project approval process and better coordinate it with provincial processes.

Section 35 of the Constitution Act 1982 provides protection to the aboriginal and treaty rights of Canada's aboriginal peoples. The courts have interpreted this section as placing a duty upon the government to consult with aboriginal peoples where approval of a project could affect an aboriginal or treaty right. While the duty belongs to the government, in practice responsibility for consultation is often delegated to the proponent. In some cases where the impact upon a right is significant, a proponent may be required to accommodate the right. The courts have ruled that regulators may assess whether the duty to consult has been satisfied when issuing an approval, although the scope of that assessment depends on the nature of the particular approval being sought and the stage of the project. For example, an economic regulator might assess the duty as it relates to the issues that are within the regulator's mandate and not the entire project.

iii Ownership and market access restrictions

The requirements to obtain a licence and licensing conditions vary depending on the sector involved and the type of activity that is the subject of the licence.

Those segments of the energy industry that are economically regulated are subject to restrictions designed to eliminate the risk of market dominance and improper crosssubsidisation of competitive business at the expense of captive ratepayers. For example, there are restrictions in the electricity and gas sectors that prohibit regulated transmitters and distributors from operating other competitive businesses. A shareholder is generally permitted to own both competitive and regulated entities, although in those cases the regulated entities will be subject to transfer-pricing provisions to ensure transactions with affiliates are at fair market value. There may also be limitations on employee and information sharing between regulated and unregulated affiliates.

Acquisition of control of a Canadian business, whether or not currently foreignowned, by a non-Canadian investor requires review (generally pre-closing) or notification (post-closing) under the Investment Canada Act. A transaction will be reviewed if it meets certain asset thresholds. Reviewable transactions may not be completed until the Minister of Industry Canada has found that the proposed transaction will be of 'net benefit' to Canada. While the federal government has generally welcomed foreign investment, in 2010 the federal government exercised its authority to block the acquisition of PotashCorp by BHP Billiton because it failed the 'net benefit' test. Since then, however, all reviewable foreign investments have been approved and the PotashCorp case does not seem to have materially deterred foreign investment. As a general rule, Canadian provinces do not limit the acquisition of interests in the energy sector by foreign companies, although the potential exists for restrictions and conditions to be imposed if regulatory approval of a transaction is required.

iv Transfers of control and assignments

While the particular requirements vary by sector and jurisdiction, a regulator's approval is generally required before a regulated entity can issue any stocks or bonds, or dispose of or encumber a significant part of its facilities. A regulator must also approve any change in control of voting securities or any merger with or acquisition of another regulated entity. In deciding whether to approve a particular transaction, the regulator must consider the public interest and the continued financial stability of the regulated entity. The time to obtain approval depends upon the complexity of the transaction and ranges between several weeks and a few months.

The transfer of oil and gas interests in Crown leases, and licences for wells, pipelines and facilities, is regulated by the respective government in each provincial jurisdiction. Typically, the transfer of a licensee's rights must be approved by a provincial regulatory body. The regulatory body will assess the licensee's and licensor's creditworthiness and will assess the exploration or production site prior to approving the transfer of the licence.

Mergers, acquisitions or changes of control may also be reviewable under both federal and provincial legislation. The federal Competition Act establishes mandatory pre-merger notification for mergers meeting certain financial thresholds and if notifiable, the merger cannot be completed for specified no-close periods. The Competition Bureau reviews mergers and may challenge a transaction before the Competition Tribunal.

Competition Bureau review can take, generally speaking, from one to five months or more depending on the complexity of the competition issues. Following expiry of the no-close period, the merging parties are free to close unless the Competition Tribunal has enjoined the transaction because of a finding that a merger would prevent or lessen (or likely prevent or lessen) competition substantially, but in practice most merging parties only close upon receipt of an affirmative clearance from the Competition Bureau.


i Vertical integration and unbundling

Canada has had a competitive interprovincial natural gas market since 1 November 1986. The genesis of this was an agreement between the federal government and the three western gas-producing provinces of British Columbia, Alberta and Saskatchewan (commonly referred to as the Halloween Agreement). Consumers can purchase natural gas directly from producers or indirectly through arrangements with local distributors.

While there is some overlapping ownership, the production, transmission and distribution segments of the market are generally disaggregated.

The nature of Canada's electricity market is more complex. The provinces of Alberta and Ontario have restructured their electricity markets and unbundled generation, transmission, distribution and retail services. Other provinces have functionally unbundled some services, but public ownership and vertical integration remain common.

In Ontario, virtually all transmission remains in hands of the government-owned transmitter Hydro One Networks Inc (which owns and operates more than 95 per cent of the transmission in Ontario). The province, however, recently launched a competitive process to designate a transmitter to develop a major new transmission project; this may be followed by further competitive processes for other transmission projects. Ontario's distribution sector is highly fragmented, with over 80 local distribution companies; there are opportunities for consolidation and private sector investment in this area. In April 2012, the Ontario government initiated a review to examine removing barriers and encouraging consolidation.

In Alberta, the provincial transmission system is owned by a number of utilities (known as transmission facility owners or 'TFOs'). The Alberta Electric System Operator ('the AESO') contracts with the TFOs to acquire transmission services. The AESO oversees the design and use of the transmission system to ensure fair market rates, nondiscriminatory access for all market participants and the safe reliable operation of the system. The Alberta Utilities Commission ('the AUC') approves the costs for transmission facility owners to provide their services. The regulated costs of the transmission companies are passed on to the AESO, which recovers the cost of operating the system and the transmission companies' costs through the AESO's transmission tariff, which is also approved by the AUC. Like Ontario, Alberta has initiated a competitive process to select transmitters to develop several major new transmission lines. The distribution system remains regulated, with distribution tariffs being approved by the AUC. The majority of distribution systems are owned by municipally owned utilities, rural electrification associations or local cooperatives.

In the other provinces, government-owned utilities own most transmission assets, with distribution in provincial or municipal hands. In Quebec, for example, Hydro‑Quebec's TransÉnergie division owns and operates the provincial transmission grid under open-access rules and regulated tariffs. Hydro-Québec Distribution has the exclusive right to distribute electricity at regulated rates throughout the province with very limited exceptions.

ii Transmission/transportation and distribution access

Distributors of natural gas and transmitters and distributors of electricity generally enjoy the exclusive right to serve a particular territory. These exclusive rights can be conferred through franchise agreements with municipal governments or by way of specified service territories or facilities prescribed in a utility's licence. A competing utility will not be permitted to operate in an exclusive franchise area without regulatory approval. It should be noted that Canadian natural gas transmitters typically do not enjoy exclusive franchise rights.

In exchange for exclusive franchise rights, transmitters and distributors in Canada are legally obliged to connect and serve third parties that lie within their franchise area upon request. These obligations are rooted in the 'common carrier' doctrine that Canada adopted from English common law. The obligations to connect and serve are generally prescribed by statute and are typically enforced by regulators through codes and licensing.

For example, Sections 28 and 29 of Ontario's Electricity Act 1998 require an electricity distributor to connect a 'building that lies along any of the lines of the distributor's distribution system' and to 'sell electricity to every person connected to the distributor's distribution system'.

The obligations to connect and serve are not absolute. A utility is entitled to recover the reasonable costs to connect a third party and is not required to continue to provide service to a customer that has failed to pay its bills. The precise parameters of these obligations are spelled out in regulations, codes, regulatory decisions and the utility's conditions of service. A corollary of the obligations to connect and serve is that transmitters and distributors must provide third parties with non-discriminatory access and cannot favour a particular category of customer. This principle, however, can be modified as illustrated by recent legislative changes in Ontario that direct electricity transmitters and distributors to provide preferential access to renewable generators.

iii Rates

Rates for transmission and distribution services in Canada are generally set pursuant to rate proceedings before federal or provincial regulatory tribunals. In some cases, rates may be set by the provincial Cabinet, or in the case of some municipally owned distribution systems, by the municipal council.

Where rates are set by a regulatory tribunal, transmitters or distributors are required to submit applications requesting rates and providing evidence to support the underlying revenue requirement (including a return on investment). Customers and other interested parties are provided with an opportunity to intervene and challenge the company's projected revenue requirement. The application may proceed to a full costof- service hearing before the regulator, although often many of the issues are resolved through negotiated settlements with intervenors prior to a hearing.

When considering an application, the regulators' mandate is to set a rate that is 'just and reasonable' to both utility owners and consumers. The concept of just and reasonable rates is well-established in Canadian law and the concept can be found in most statutes that govern rate-regulated entities. Canadian regulators are generally granted wide discretion over the methodology used to calculate a just and reasonable rate.

Canadian law requires that the resulting rate must be sufficient so that the utility's shareholders can earn a 'fair return' upon their capital investment (i.e., as large a return on the capital invested in the company as the investor would receive if it were investing the same amount in other securities possessing an attractiveness, stability and certainty equal to that of the company). The rate of return is composed of a return on equity and cost of debt and may be set by a regulator in a generic proceeding to ensure consistency between all of the entities it oversees.

Various Canadian regulators have experimented with performance or incentive ratemaking and automatic adjustment formulas in an effort to limit full cost-of-service rate proceedings.

iv Security and technology restrictions

Oil and gas pipelines are subject to safety and security standards established by the NEB or applicable provincial regulators. The NEB's security standard includes criteria for establishing a security management programme to ensure security threats and associated risks are identified and managed and proper procedures are in place to minimise the effects of any security breaches.

Electricity infrastructure in Canada is subject to standards established by the North American Electric Reliability Corporation ('NERC') and various regional reliability organisations ('RROs'), which have established specific standards for protecting the security of the bulk electric system. NERC and RRO standards are often made enforceable through memorandums of agreement signed by provincial regulators. The federal Export and Import Permits Act contains restrictions on the transfer of technology outside of Canada. Generally, the Act restricts the export of technology that is required for the development, production, or use of certain groups of products identified on the Export Control List. The most notable items on the list for the energy sector are nuclear dual-use goods and technology.


i Development of energy markets

In Ontario, wholesale and retail competition in the electricity market has been dampened by government intervention in the form of price caps, subsidies, rate-regulated baseload generation and other policies. A merchant generation market has not developed in Ontario and most new generation supply is procured by a government agency, the Ontario Power Authority (OPA), under long-term power purchase agreements. While all generation is, in fact, offered and scheduled through a real-time spot market administered by the Independent Electricity System Operator ('IESO'), most customers are largely insulated from the spot price through the aforementioned regulatory measures. Currently, there are initiatives underway to enhance price fidelity and competition in the IESO market.

Alberta has fully functioning competitive wholesale and retail markets. The AESO contracts with transmission facility owners to provide generators access to the electric grid. All wholesale power must be sold through the power pool, which is operated by the AESO, subject to a few exceptions such as 'behind-the-fence' generation or sales under direct sales contracts or forward contracts. The AESO dispatches power through the power pool based on relative economic merit. It is also important to note, however, that much of the electricity traded in Alberta is not priced at the hourly pool price, rather the price is set in a direct sales contracts or forward contracts pursuant to the exception noted above. For example, forwards market trading organisations, such as the Alberta Watt Exchange, provides wholesale power purchasers with the option to buy quantities of power (one hour out, one day out, one month out, one quarter out and one year out).

Electricity retailers, in turn, buy large blocks of energy and then repackage it into offers to end-use consumers, whether that is through the regulated rate or contracts. Alberta has an 'energy-only' market, where generators are paid for their electricity output on an hourly basis and do not receive any other out-of-market compensation, such as capacity payments.

In other provinces that do not have competitive power markets there are some government procurement opportunities for independent power producers. There is also substantial trade between provincial utilities (e.g., Hydro-Québec, BC Hydro) and neighbouring US markets. In particular, British Columbia, Manitoba and Quebec – all of which have abundant hydro resources – export substantial amounts of power to the United States. These exports have in the past produced outsized profits; however, the advent of plentiful shale gas has recently depressed electricity prices in the United States making exports to the US less lucrative.

Canada has a well-developed national natural gas market. Traditionally, gas has been shipped from western Canadian producers to customers in eastern Canada and the US northeast (although as noted above the recent proliferation of shale gas in North America is fundamentally altering this). The Canadian and US natural gas markets operate as one large integrated market. Canadian gas production is connected to the North American gas market through a network of thousands of kilometres of pipelines that allows buyers to purchase and transport natural gas from a number of supply sources across the continent.

The natural gas price has three components: the cost of the natural gas itself (known as the commodity cost), the pipeline transportation cost and the distribution cost. Generally, the transportation and distribution costs are regulated by government agencies and tend to change moderately over time. The commodity cost makes up most of the final cost to consumers and will change in response to supply and demand conditions and can be much more volatile. The Henry Hub, an intersection of numerous pipelines in Louisiana, is the pricing point for natural gas traded on the New York Mercantile Exchange (NYMEX). As such, many gas market transactions in North America are based on the pricing at the Henry Hub. The AECO-C hub in south-east Alberta is the main Canadian pricing point. The price of gas traded at these hubs is publicly available and establishes a commodity cost of natural gas. Natural gas can be traded for physical delivery same day, or at some point in the future. A price set today for delivery at some later date is referred to as a 'future' price. Spot and future prices are set through the interaction of supply and demand through trading platforms such as the Natural Gas Exchange in Alberta or the New York Mercantile Exchange in the United States.

Canada is a participant in the global oil market in which buyers and sellers trade volumes, mostly on the basis of short-term contracts. It is this interaction that sets the world price of oil. The Canadian and US markets for oil are fully integrated. Canadian crude oil production is connected to the North American oil market through a network of pipelines, tankers, rail and trucks. Although Canada is the sixth-largest producer in the world, it produces only about 4 per cent of total daily production, so it does not have a major influence on the world price of oil. Currently, Canada exports two-thirds of the oil it produces each day, but also imports half of the oil it needs on a daily basis. Oil is produced and exported from Western Canada and Newfoundland, while the refining industry in Atlantic Canada, Quebec and part of Ontario relies upon imported crude oil for feedstocks. Close to 100 per cent of Canadian crude oil is shipped to the United States, to which Canada is the largest exporter of crude oil. Canada's two major benchmarks for crude oil are the Western Canada Select and Edmonton Par. As the United States is Canada's main export market, typically Canadian crude oil is priced relative to the crude oil benchmark West Texas Intermediate, at Cushing, Oklahoma. Crude oil, like natural gas, is bought and sold through a variety of contract types, including 'spot' transactions.

As noted above, there is currently a disparity between the price paid for Canadian oil production and the world price, such that Canadian oil production is increasingly looking for markets outside of the United States.

ii Energy market rules and regulation

Power and gas markets are for the most part separately regulated, and power is much more heavily regulated. In Ontario and Alberta, there are market rules administered by the respective independent system operators that govern and regulate the wholesale spot market and related markets. These address, among other things, registration requirements, reliability standards, prudential obligations, bid or offer protocols, dispatch, settlement, compliance, penalties and dispute resolution. Retail markets are governed by various consumer protection legislation or regulations and energy board rules and codes. These typically impose more onerous requirements on sales to residential or other small-volume consumers.

With regards to the gas market, wholesale trading is not governed by any pricing regulations or rules in Canada. In the case of the retail gas market, like electricity, it is also governed by various consumer protection statutes, regulations and energy board codes and rules. Some provinces in Canada have commodity futures legislation that regulates trading and advising in commodity futures contracts and commodity futures options. Moreover, in other provinces the definition of 'security' in securities legislation includes over-the-counter derivative transactions (i.e., swap contracts) or physical transactions (including to make or take future delivery of natural gas). As a result, these types of financial transactions and physical transactions are governed by dealer registration and prospectus filing requirements unless the transaction fits within certain exemptions. A number of provinces (including Alberta and British Columbia) have blanket orders that address this issue by exempting such transactions from filing and registration requirements.

It is important to note that in Canada there is no national securities law and no national securities regulator. Rather, securities law and regulation is the responsibility of the provincial and territorial governments; however, many substantive aspects of securities regulation are harmonised through the use of 'national instruments' or 'national policies', which are adopted by each of the provincial and territorial regulators.

iii Contracts for sale of energy

In Ontario and Alberta, wholesale and retail customers may contract to purchase electricity. In Ontario, residential and low-volume consumers may purchase from competitive retailers or pay a default price passed through by their local distribution company; this default price is periodically 'smoothed' by the OEB to reduce volatility. As a result of rate-regulation of most baseload generation, various government subsidies and price smoothing, the retail market for residential and low-volume consumers has been significantly dampened. There is a more robust market for commercial and industrial customers.

In Alberta, consumers are free to purchase their electricity from any licenced retailer. Neither wholesale nor retail electricity prices are regulated, making Alberta the only province with fully competitive wholesale or retail markets. Small-volume consumers who do not wish to purchase electricity from a competitive licensed retailer are eligible for a regulated rate available to eligible consumers until 30 April 2013. Owners of distribution systems must provide a regulated rate, either directly or indirectly, by appointing a regulated rate provider. The AUC regulates the rates charged by the regulated providers. As previously noted, much of the electricity traded in Alberta is not priced at the hourly pool price; rather the price is set in a direct sales contracts or forward contracts. These direct sales contracts and forward contracts must be undertaken in accordance with rules set by the AESO.

In Canada, wholesale and retail customers may contract to purchase natural gas. Depending on the province, the rate a customer pays for natural gas may be a regulated rate or a contracted rate. Regulated rates are set by provincial regulators whereas the provincial regulators have no jurisdiction over competitive contracts.

iv Market developments

A fundamental change that is being considered for Ontario's wholesale electricity market is to make transmission-connected renewable resources (particularly wind) dispatchable; at present, renewable resources self-schedule and get paid whenever they are generating.

Due to the unprecedented increase in renewable resources (both transmission and distribution-connected) Ontario has been experiencing surplus conditions during non‑peak periods that have required it to dispatch off nuclear units in favour of wind and other non-dispatchable renewable resources. The proposed changes are contentious and may have a significant impact on wind generators whose contracts pay them only when generating.

As noted above, western Canada is experiencing a number of new developments that threaten to fundamentally change its oil and gas industry. Conventional oil and gas is increasingly being displaced by significant new investments being made to develop the oil sands and shale gas reserves. Foreign investment in these projects is rapidly accelerating through the proliferation of large joint ventures, financings and acquisitions. This investment is fuelling rapid development of projects and of related infrastructure. New pipeline proposals, such as Keystone XL and Northern Gateway and the development of new facilities, such as LNG facilities near Kitimat, British Columbia, promise access to new markets in Asia; if these come to fruition, they will significantly alter the relationship between Canadian producers and markets in the United States.

These projects are likely to encounter regulatory challenges given their scale and the issues they create with respect to the rights of First Nations, environmental impacts of new oil pipelines, hydraulic fracturing and horizontal drilling and 'dirty oil'. Initiatives are underway to streamline Canada's environmental review process and to address the potential for regulatory log-jams; however, it remains uncertain how successful these initiatives will be.


i Development of renewable energy

Several Canadian provinces have introduced policy initiatives to spur renewable development in recent years. These policies include renewable energy funds, renewable portfolio standards, renewable procurements and feed-in-tariff programmes. Ontario's green energy policies stand out as the most ambitious in Canada. The Ontario government has mandated dramatic increase in renewable resources.

To meet this goal, the provincial government introduced legislation to dramatically increase the contribution of renewable and conservation resources to Ontario's supply mix to encourage 'green investment' and 'green jobs' and to address climate change.

The centrepiece of the legislation is a feed-in tariff (FIT) programme, which provides standard-offer prices and contracts for renewable generation, including wind, solar and biomass. As part of promoting the 'green economy' objectives, the programme includes domestic content requirements aimed at inducing wind turbine, solar panel and other component manufacturers to locate in Ontario. The programme was launched in late 2009 and promises to assist in meeting the government's goal of 10,700MW of non‑hydro renewable generation by 2015.

Other Canadian provinces have introduced more limited green energy initiatives. Notably, Nova Scotia introduced a renewable portfolio standard to source 25 per cent of its electricity from renewable sources by 2015 and is currently introducing a competitive procurement to purchase approximately 300MW of renewable energy from independent power producers. Similar standards also exist in New Brunswick and Prince Edward Island. Quebec, despite significant untapped hydro resources, has mandated that 10 per cent of its generation should be sourced from wind. It is expected that Quebec will issue a call for further tenders for up to 700MW of wind in 2012 or 2013. Saskatchewan has set up the 'Go Green Fund,' which will invest in results-based projects that contribute to the reduction or avoidance of greenhouse gas emissions. Also, the Manitoba government released 'Green and Growing', which provides a goal of developing 1,000MW of wind power in Manitoba over the next decade.

ii Energy efficiency and conservation

At the federal level, the government has established an Office of Energy Efficiency ('the OEE'), which offers a number of grants and incentives to encourage energy efficiency. The OEE's initiatives have included efficiency standards, home retrofitting, and the labelling of consumer products.

There are also various efficiency and conservation initiatives at the provincial level. In Ontario, the provincial government has created a Conservation Fund to fund electricity conservation initiatives. The Conservation Fund supports a wide variety of electricity conservation projects, including programmes that allow electricity users to take advantage of commercially available energy-saving measures and incentives.

iii Technological developments

Ontario has established a Smart Grid Forum that is composed of members of the utility sector, industry associations, public agencies and universities. The purpose of the forum is to make recommendations that focus on removing barriers to smart grid development in the province.


A pressing issue in Canada is facilitating the delivery of Canada's abundant energy resources to the rest of the world. This is exemplified by the controversy over the proposed Keystone XL pipeline in the United States, which would deliver crude oil from the Alberta oil sands to the refineries along the Gulf Coast. In October 2011, the NEB granted a 20- year licence to export 10 million tonnes of LNG per year from British Columbia, and a new C$5 billion export terminal in Kitimat is expected to begin shipping LNG to Asia by 2015. Meanwhile, Royal Dutch Shell plc purchased a marine terminal near Kitimat with a view to exporting even larger quantities of LNG with its Korean and Japanese partners. Various proposals have been tendered to increase crude oil transport capacity to the west coast of Canada, including projects by Enbridge, Kinder Morgan, Canadian National Railway Co and Canadian Pacific Railway Ltd. In March 2012, the Canadian government announced measures to streamline the regulatory process for these projects.

Continued discoveries and development of unconventional gas resources in North America have the potential to dramatically change the continent's energy landscape in ways that could not have been predicted a few years ago. Among other things, the potential for low cost gas-fired electricity generation has brought into question the wisdom of Hydro-Québec's current 'big hydro' projects and Ontario's plans to refurbish and expand its nuclear generating fleet; however, environmental questions about shale gas extraction still linger, and Canadian jurisdictions are beginning to grapple with the need to set new guidelines for practices such as hydrofracking.

Stikeman Elliott lawyers have contributed to the above chapter on Canada in The Energy Regulation and Markets Review?.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.