Canada: Separation Anxiety – Is A Divided Alberta Energy Regulator Around The Corner?

Premier Notley is set to review the Alberta Energy Regulator's (AER) mandate.  Her government is undertaking an ambitious and comprehensive examination of Alberta's energy regulatory framework.  This includes a potential split of the AER.  A new policy direction is expected which will address the Premier's concerns about the AER's role as both "a promoter of energy and the primary vehicle of environmental protection" in Alberta.1

Changes to the scope of the AER and its predecessors have a long history in Alberta.  Proposals for a "one-window" regulatory approval system span well over a decade.  On December 10, 2012, the Responsible Energy Development Act (REDA) – legislation that created a single regulator – received Royal Assent.  The AER become operational in June, 2013.  It assumed the energy development regulatory functions previously administered by the Energy Resources Conservation Board, and Alberta Environment and Sustainable Resource Development.  These span project application to reclamation.  Reorganization was operationally completed in 2015.

The changes under REDA responded to complaints of inconsistencies and overly complicated and duplicative processes for resource development projects.  REDA established a "one-stop" approval process.  Moreover, REDA was enacted in response to province's Regulatory Enhancement Project (REP) and related recommendations that a single regulator be created.  REDA – as well as federal legislation of the same era, including procedural streamlining amendments to the National Energy Board Act – were in large measure an attempt to reduce the time and expense required to obtain regulatory approvals, and to make the Canadian energy industry more competitive globally.

One intent of REDA is to ensure that the oil and gas policy development function would rest with the provincial government, specifically Alberta Energy, and Alberta Environment and Parks (formerly, Alberta Environment and Sustainable Resource Development). Section 67 of REDA allows the Energy Minister to direct the AER's priorities.2 Policy assurance – the achievement of policy outcomes set by the government – is undertaken by the AER as regulator.  The interface between the government and the AER is the Policy Management Office, which was originally proposed under the REP to: (i) facilitate policy integration and communication; (ii) ensure a common risk management approach; and (iii) support a coordinated approach to public engagement. Furthermore, the AER's corporate structure under REDA separates its governance from its regulatory function.

A chief criticism of REDA – although not one voiced by the new government – is that it reduced the independence of the AER from government.  Over-arching public interest considerations are now handled by the provincial government, rather than through the AER hearing process.  Operationally, it has been clear that Alberta Energy drives policy.  All of this represents significant change from what was previously an independent provincial energy regulator.  If the Premier or her Energy Minister wishes to effect further change to the mandate of the AER, it need not necessarily be split.  Rather, the regulator could be provided new policy direction pursuant to section 67 of REDA.   

Given its short period of time since its implementation, it is not yet clear whether the potential for government influence on decision making by the AER has detracted from regulatory certainty, resulting in global investment dollars going elsewhere.  Independent, arms-length, science-based decision making by Alberta's energy regulator, which has historically been the norm in Alberta, has generally been viewed by global investors as an attractive feature of Alberta's oil and gas landscape, to the extent that regulatory outcomes may be more predictable and objective.  That said, decision-making based on policy administered by the government, so long as it is well-defined and consistently applied, may actually add to regulatory certainty, thereby enhancing investment potential.

The AER's stated mandate since the 2013 reorganization and the passage of REDA has been "to provide for the efficient, safe, orderly and environmentally responsible development of energy resources in Alberta through the Regulator's regulatory activities".3  This includes "the protection of the environment" and "the conservation and management of water, including the wise allocation and use of water".4 Premier Notley's chief concern appears to be that the AER's environmental oversight and energy regulatory approval processes are not consistent, since the regulator's "overarching mandate is to promote energy development."5

Given the relatively short timeframe during which REDA has been in force, it remains to be seen how effectively the objectives of environmental responsibility and resource development are co-managed, should they not be split.  It is too early to assess the legitimacy of criticisms that a single regulator removes environmental checks and balances and shifts the AER's role to one of simply permitting.  Conversely, there may ultimately be a basis to argue that resource development has been unjustifiably stifled. 

Some insight may be found in AER Decision 2013-11 which authorized Shell's Jackpine Mine Expansion Project.  It was one of the first project approval determinations rendered under the REDA framework.  By any standard, AER Decision 2013-11 involved a rigorous environmental review, with the ensuing approval being subject to 22 conditions, 88 non-binding recommendations and numerous findings of significant adverse environmental and other effects.6

Changes to the structure of the AER will be among the most critical energy policy reforms the new government considers. The AER's mandate directly impacts the energy industry's ability to obtain project approvals, secure financing and assess jurisdictional and regulatory risk.  From an industry perspective, key implications – both positive and negative – of a split regulator include the following:

  • the potential to facilitate greater national and international social acceptance for Canadian energy project development;
  • less large bureaucracy, and potentially greater regulatory focus and ability to work more directly with applicants;
  • overlapping jurisdiction and regulatory duplication;     
  • lack of clarity respecting the AER's new structure;
  • project delays by returning to a multiple approval system;
  • movement from a life-cycle (i.e. from conception through operations to final decommissioning and reclamation) to a more fragmented system creating greater ongoing regulatory burdens;
  • increased risk of reviews, appeals and legal challenge respecting the scope of new statutory changes; and  
  • uncertain realignment with federal regulators.

Regardless of whatever potential benefits may result from a split regulator, the uncertainty of a restructured provincial energy regulator – for the second time in less than three years – creates significant risk for energy companies, investors, and the province as a whole. It is also unclear whether such dramatic reform is necessary to achieve the new government's goals.  As mentioned, a refreshed policy approach can be implemented through section 67 of REDA and senior staffing changes resulting from the NDP election pledge to assess existing agencies, boards and commissions.  Further, some of the AER's recent innovative approaches to environmental protection, including cumulative impacts management and play-based regulation, may already provide an existing platform Premier Notley's government to address concerns regarding the level of current regulatory environmental oversight.

Energy Minister Marg McCuaig-Boyd stated that there will be "an announcement in the next few weeks" about a review of the AER and a wider look at Alberta's energy regulations.7  In a short period of time the new government is poised to address several critical pillars of Alberta's energy economy, including royalties, refining and greenhouse gas.8  The AER is now among them.

From 2012 to 2015, BLG wrote extensively on the significant changes that were brought about through the passing and implementation of REDA, as well as the government process which preceded the provincial regulatory reforms, the scope of which is unprecedented in Alberta's oil and gas history.9 To the extent that the new government further reforms the Alberta oil and gas regulatory framework, BLG will be providing regular analysis.

Footnotes

1 http://calgaryherald.com/business/energy/premier-should-leave-alberta-energy-regulator-alone.

2 Section 67 of REDA provides as follows:

Direction to Regulator

67(1)  When the Minister considers it to be appropriate to do so, the Minister may by order give directions to the Regulator for the purposes of

(a)    providing priorities and guidelines for the Regulator to follow in the carrying out of its powers, duties and functions, and

(b)    ensuring the work of the Regulator is consistent with the programs, policies and work of the Government in respect of energy resource development, public land management, environmental management and water management.

(2)  The Regulator shall, within the time period set out in the order, comply with directions given under this section.

3 REDA, section 2(1)(a).

4 REDA, section 2(1)(b)(ii) and (iii).

5 http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/alberta-premier-considers-splitting-provinces-energy-regulator/article25084947/

6 http://www.aer.ca/documents/news-releases/AERNR2013-21.pdf

7 http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/alberta-premier-considers-splitting-provinces-energy-regulator/article25084947/

8 See our June 26, 2015 blog posting discussing the recent provincial regulatory developments re: greenhouse gas emissions at: http://blog.blg.com/energy/Lists/Posts/Post.aspx?ID=358.

9 http://www.blg.com/en/newsandpublications/publication_3402; http://www.blg.com/en/NewsAndPublications/Documents/publication_3089.pdf; http://www.blg.com/en/NewsAndPublications/Documents/Publication_4042_1033.pdf; http://www.blg.com/en/NewsAndPublications/Documents/Publication_3971.pdf.

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