On March 11, 2014, the BC government introduced the Water Sustainability Act into the Legislature for first reading as Bill 18 (Bill). If passed, the Water Sustainability Act will replace and modernize BC's century-old Water Act.
As noted in our prior blog post, the introduction of formal legislation is the culmination of over four years of consultations and follows on the heels of a detailed legislative proposal (Legislative Proposal) on the statute released by the government on October 18, 2013. We have summarized below the key features of the Bill that are likely to have material implications for the energy sector:
- Protecting Water Resources. A major feature of both the Legislative Proposal and the Bill is the protection of stream health and aquatic environments. For the purposes of sustaining water quantity, water quality and aquatic ecosystems, water objectives may be set by regulation in relation to watersheds, streams or aquifers. These objectives will likely form the basis for decision makers in the determination of water allocation and water licence conditions.
- Extended Terms. Consistent with the Legislative Proposal, the Bill attempts to reconcile the longstanding misalignment between water licence terms and the terms of electricity purchase agreements (EPA) for hydro-electric facilities. In BC, a mismatch occurs because EPA terms commence for a specified period after a project achieves commercial operation while water licence terms typically commence from the date of grant. Due to the construction period between the grant of the water licence and achieving commercial operation, water licences commonly expire before the term of the EPA. The Bill resolves the issue by providing for a maximum term of 40-years for operations and a 10-year term for the project development period prior to the start of operations. Existing licensees may apply for an extension to account for the actual development period and such extension would not be considered a renewal but rather a new application. While the proposed regime mandates a default review of long-term water licenses at least every 30 years, licenses issued on or after October 23, 2003 for power and power storage purposes are exempt from review.
- New Enforcement Tools. The Bill provides for a broader array of enforcement tools which include Administrative Monetary Penalties and compliance agreements designed to offer alternatives to ticketing or full criminal prosecution. Parties subject to Administrative Monetary Penalties would be governed by an Administrative Monetary Penalty process which provides for notice, hearings and appeals.
- Application to Groundwater. The Bill establishes a regulatory regime for groundwater extraction and use that is consistent with the existing regime in place for surface water, including pricing (where an application fee and annual rental will be payable) and prioritization of use based on the system of rights allocation known as "first in time, first in right" or FITFIR. The minister, by regulation, may restrict or require certain users (the Legislative Proposal suggests large volume users) to obtain authorizations to drill or conduct other activities with respect to wells. In addition, the government is also considering changing its approach to water pricing, which will likely result in increased costs for surface water users and new fees and rentals for large groundwater users. Prior to finalizing its approach to water pricing, the BC government is accepting public comments on water pricing until April 8, 2014 through its Water Sustainability Act blog.
- Short-term Water Use Approvals. The Bill contains a provision that would permit the issuance of repeat short-term (up to 24 months) water use approvals to the same person allowing the diversion of water from the same water source for the same water use purpose. This would enshrine in legislation the practice of issuing repeat short-term approvals for water use in connection with certain industrial activities such as hydraulic fracturing, commonly referred to as fracking. The BC Oil and Gas Commission has been known to issue repeat short-term approvals under the current Water Act to the same companies for fracking activities, a practice which is now being challenged in court by the Western Canada Wilderness Committee and the Sierra Club of BC. Until the Bill is passed into law, it is uncertain what the proposed changes will mean for the legal challenge.
The BC government anticipates that the Water Sustainability Act will be passed by the Legislature by the end of May 2014 and brought into force in spring 2015, once supporting regulations have been drafted and finalized. Environment Minister Mary Polak has also indicated that there will be further stakeholder engagement on water fees and rentals before the water pricing structure is set. We will update our blog as the Bill progresses through the Legislature.
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