Bill 7: Alberta Government Aims to Set Deadlines for AER Project Approvals


By Marika Cherkawsky and Michael Barbero

On Wednesday, the Alberta Government tabled Bill 7, the Responsible Energy Development Amendment Act, (“Act”). If passed, the Act would allow Cabinet to specify time limits for the review and approval of energy projects by the Alberta Energy Regulator (“AER”). Bill 7 is intended to provide project proponents and other applicants with greater certainty as to approval timelines.   

Bill 7 does not prescribe the maximum timelines, rather it authorizes Cabinet to approve regulations establishing same (see s. 60(2) of Bill 7). In doing so, Bill 7 removes the requirement that the AER must make a written decision, with reasons, within “the time prescribed by the rules” after the completion of:
  •  a hearing on an application (s. 35(1));
  • a regulatory appeal (s. 41(1)); or
  • a reconsideration (s. 44(1)).
Instead, Bill 7 proposes amending section 60 of the Responsible Energy Development Act by including the following subsections:

(2) The Lieutenant Governor in Council may make regulations
  • (a) to establish time limits on the exercise of powers, duties and functions by the Regulator;
  • (b) to establish time limits in respect of any process, hearing or decision concerning which the Regulator may make rules under this Act or any other enactment.
(3) A regulation made under this section prevails over any rule that is made or amended by the Regulator with which it conflicts or is inconsistent to the extent of the conflict or inconsistency.

Uncertainty remains in relation to how the government will arrive at the prescribed timelines, what consultation or input from the AER will be received and whether or not the imposition of timelines will resolve the concerns voiced by industry. Moreover, the government has made it clear that the AER’s obligations to fully consider social and economic effects and the effects of any activity on the environment and landowners is unchanged.  

The government is hopeful that the changes proposed by Bill 7 will assist in restoring predictability to the regulatory process without sacrificing rigor in conducting assessments of proposed projects. Whether the imposition of deadlines will be effective in achieving this goal remains to be seen.

Alberta Energy Regulator Suspends Environmental Monitoring Due To COVID-19



On May 20, 2020, the Alberta Energy Regulator (“AER”) announced sweeping temporary suspensions to environmental monitoring requirements across Alberta’s energy industry. The suspensions are a follow-up to the Minister of Environment and Parks and Minister of Energy’s earlier suspensions to certain environmental reporting requirements. This is a significant development as the previous measures essentially suspended requirements to report routine monitoring information, while this new step actually suspends the underlying requirement to monitor in certain circumstances. The AER states this step is a measured response to public health concerns from the COVID-19 pandemic including legitimate concerns that energy operators will not be able to meet certain monitoring requirements while complying with the COVID-19 public health orders and guidelines.

Scope of the New Suspensions

While the AER caveats the announcement with the comment that “there must be a demonstration that the public health orders pose a challenge in completing the monitoring activity” and “any deferral of monitoring must have a low risk of potential short- and long-term impacts”, the scope of the monitoring suspensions is significant. The suspension affects the following monitoring activities:

  • Surface water quality testing and analysis with the exception of surface water released to the environment.
  • All groundwater sampling under Water Act licences and approvals but at least one monitoring event must take place in 2020.
  • Soil monitoring and groundwater monitoring under the Environmental Protection and Enhancement Act (EPEA) approvals with the exception of any monitoring necessary to protect human health and ecological receptors. 
  • Lab testing of water released except for domestic wastewater.
  • Volatile organic compounds and reduced sulphur compound monitoring, including fugitive emissions surveys carried out by third-party contractors.
  • Fugitive emissions leak detection and repair (LDAR) programs carried out by third-party contractors. Methane monitoring requirements must still be met.
  • Quality Assurance Plan (QAP) audits and verifications, including third-party audits, under the Continuous Emission Monitoring System (CEMS) Code. Approval holders are still required to maintain CEMS monitoring and report exceedances and meet federal multi-sector air pollutants regulation measurement requirements.
  • Audits and verifications, including third-party audits, under the Continuous Emission Monitoring System (CEMS) Code. Approval holders are still required to maintain CEMS monitoring and report exceedances and meet federal multi-sector air pollutants regulation measurement requirements.
  • Wildlife monitoring programs but wildlife deterrents and mitigations are to remain in place.
  • Wetland monitoring.
  • All research requirements under EPEA approvals.
  • All reclamation monitoring programs. The mitigation and repair of potential impacts, such as weed infestations and soil erosion, must continue.
  • Five-year integrity testing of aboveground storage tanks. Monthly visual inspections for evidence of problems must continue.
  • In addition, the AER provided the following regulatory modifications:
  • Operators that conduct twice-annual surveys to determine the volumes of fluid tailings and treated fluid tailings in their storage facilities are now required to perform only one of those surveys in 2020.
  • Pipeline deactivation - Internal and external corrosion mitigation and monitoring must continue on deactivated pipelines that are susceptible to corrosion.
  • Approval holders may apply to the AER to modify the frequency and timing of manual stack testing (stack surveys) and similar activities. 

Ongoing Reporting of Emergencies and Documentation of Reporting
 
The AER advises that operators must continue to report emergencies, including incidents, contraventions, and releases that have or may have the potential to impact the environment or public safety. Further, operators must continue to record and retain complete documentation relating to any reporting.

Interaction with Federal Requirements 

Similar to the initial measures implemented by the Province, the federal government has suspended certain requirements to report data due to COVID-19, however the data must still be collected. To date, the federal government has not suspended any monitoring requirements.

Termination

The AER suspensions and modifications will apply for so long as Ministerial Orders 17/2020 and 219/2020 and the public health orders are in effect, which are currently scheduled to last until August 14, 2020. However, the soil monitoring and groundwater under EPEA approvals must resume no later than September 30, 2020, with at least one monitoring event taking place in 2020. All timelines are subject to change as the situation develops.

Effect on Industry 

The suspensions and modifications come as a welcome relief to operators currently strained by COVID-19 restrictions on operations. Industry had raised concerns that the reporting suspensions put in place in March 2020 did not provide sufficient relief as the main challenges during the COVID-19 pandemic relate to attending on site and fulfilling the monitoring requirements, not the reporting of those results. 

For further information on how these developments may impact you or your business, contact JoAnn P. Jamieson in Calgary, Sean Parker in Edmonton or another member of our Environmental, Energy and Regulatory Practice Group.

Alberta Court of Appeal Finds the ‘Big Molly’ Project Triggered a Full Environmental Impact Assessment



In the recent decision of Alexis v Alberta (Environment and Parks), 2020 ABCA 188 (“Alexis”), the Alberta Court of Appeal interpreted important environmental legislation and provided guidance on when a full environmental impact assessment (“EIA”) will be required for a project.

The key issue in Alexis was whether the proposed silica-sand extraction project met the definition of a “quarry” under Alberta’s Environmental Protection and Assessment Act[1] (“EPEA”), and therefore was a “mandatory activity” under the Environmental Assessment (Mandatory and Exempted Activities) Regulation (“the “Regulation”).[2] The Court found that the project was a “quarry” and a “mandatory activity”, and accordingly triggered an EIA under section 44(1)(a) of EPEA.

The Big Molly Project 

The Alberta Court of Appeal’s decision in Alexis concerned a project known as “Big Molly”, located near the hamlet of Glenevis, Alberta. The company behind the Big Molly development, Wayfinder Corp. (“Wayfinder”), is in the business of extracting and processing silica-sand to be used in hydraulic fracturing operations. Once in operation, Big Molly was expected to cover 68.6 hectares and produce silica-sand at an annual rate of 500,000 tonnes for an estimated fifteen years.  

In October 2017, Wayfinder sought guidance from the Director of Alberta Environment and Parks (the “Director”) on whether an EIA would be required for Big Molly. The Director decided that the project did not trigger the requirement for an EIA under the applicable provisions EPEA.

Armin Alexis, a member of the nearby Alexis Nakota Sioux First Nation, subsequently filed an application for judicial review of the Director’s decision that an EIA was not needed. Mr. Alexis was concerned that Big Molly – without an assessment of the project’s environmental, social and economic implications – would have an adverse impact on the traditional activities of his community.  

The reviewing judge in the Court of Queen’s Bench found that the Director had reached a “reasonable conclusion”, and confirmed that Wayfinder would not be required to submit an EIA report. These findings were appealed by Mr. Alexis to the Court of Appeal.

Issue of Statutory Interpretation 

A majority of the Court of Appeal allowed Mr. Alexis’ appeal, and ordered the Director to require an EIA report from Wayfinder. In doing so, the Court clarified several principles underlying the assessment process set out in EPEA.
 
First, the Court referred to the recent Supreme Court of Canada decision in Canada v Vavilov,  2019 SCC 65 (“Vavilov”) for its analysis of the standard upon which decisions of statutory delegates (such as the Director, in this case) must be reviewed. Vavilov confirmed that the presumptive standard of review is now “reasonableness”, which is only rebutted in specific circumstances. A delegate’s decision is unreasonable if based on reasons that are “irrational and illogical… [exhibiting] circular reasoning, false dilemmas, unfounded generalizations or an absurd premise”.[3] In Alexis, all parties agreed that the Director’s decision should be subject to the standard of reasonableness.

Second, the Court examined the assessment-related provisions of EPEA. In order for an EIA to be triggered, the Big Molly project must meet the definition of a “mandatory activity” under the Regulation and the definition of a “quarry” under EPEA. If the undertaking failed to meet one or both of these definitions, Wayfinder would be relieved of the obligation to prepare and submit an EIA.  

Big Molly was expected to produce 500,000 tonnes of silica-sand each year, which greatly exceeded the 45,000 tonne threshold established under the Regulation. It was therefore found to satisfy one requirement, the definition of “mandatory activity”.  

The Court was then tasked with determining whether the project constituted a “quarry” or a “pit”.  The definition of “quarry” involves the removal of any mineral other than a coal or oil sands bearing substance. The definition of “pit” involves the removal of sand, gravel, clay or marl and expressly excludes a quarry (a pit cannot also be a quarry). In undertaking this analysis, the Court revisited the following principles on statutory interpretation: 
  • The statute in question, as well as related statutes on the same subject matter, should be read in their entirety. Statutory language cannot be fully appreciated without an understanding of the broader context in which it was written.  
  • The reason why the legislature passed the statute should be identified. Determining the aim of the statute – whether to “obviate some mischief, supply an inadequacy, to effect a change of policy, [or] to formulate a plan of government”[4] – will inform its interpretation.  
  • Exceptions in statute should be narrowly construed.  Put differently, individuals seeking the benefit of a statutory exception must clearly establish that they come within its terms.  
  • The potential permissible meanings of the statutory language, taking into account plain and ordinary language, must also be identified. A permissible meaning is one that a “reasonable reader who uses the language correctly would give to the text at the time of its production… words must not be given meanings they cannot possibly bear”.[5]

Director’s Decision “Irrational and Illogical”

After applying each of the above common law principles, the Court concluded that Big Molly was better characterized as a “quarry” than a “pit”. This determination, in light of the surrounding provisions of EPEA, “trigger[ed] the most rigorous environmental impact assessment process possible”.[6]    

Although the Director did not provide any reasons for her finding that an EIA was not required, the Court characterized the decision as “irrational and illogical”,[7] thereby falling short of the applicable reasonableness standard. The Court held that “[t]he Director could only have come to one rational conclusion” – that an EIA was required – which the Director failed to do. Ultimately, the Court ordered the Director to notify Wayfinder that it was required to submit an EIA report.

Takeaway

EPEA’s assessment process requires the early identification of an activity’s environmental, social and economic effects. In this way, proponents are required to integrate a project’s broader effects into their decision-making early on in the process.  

Significantly, the Alexis decision turned on a question of statutory interpretation that examined the broader environmental regime. This turned out to be a critical issue that arose in the planning phase of the project. Although Wayfinder sought to discharge its due diligence by obtaining advice from the regulator that an EIA was not required, it was vulnerable to the Director not interpreting the legislation correctly. 

The message to proponents is to tread carefully. As seen with other high profile projects in recent years, regulatory decisions on environmental and regulatory assessment processes may be subject to close scrutiny by the courts, and even reversed. While a determination early on that project does not trigger an EIA may be considered good news, it is important that the Director is applying EPEA and its requirements in a reasonable manner; otherwise, the project runs the risk of potential legal challenge.  

If you or your company have questions regarding the above article or any related issue, please do not hesitate to contact Sean Parker in Edmonton, JoAnn P. Jamieson in Calgary or another member of the McLennan Ross Energy, Environmental and Regulatory Practice Group.


[1] R.S.A. 2000, c. E-12, s. 1(ccc).
[2] Alta. Reg. 111/1993, Sch. 1(b)
[3] Alexis at para 36; Vavilov at para 104.
[4] Alexis at para 44.
[5] Alexis at para 47.
[6] Alexis at para 75.
[7] Alexis at para 21.

Cost Consequences – Considerations in the Context of Surface Rights Act Appeals

By the McLennan Ross Energy, Environmental & Regulatory Team

Introduction

Under Alberta’s Surface Rights Act (“Act”), when a landowner and an oil and gas company (“Operator”) cannot agree, the amount of compensation payable for the granting of surface rights is determined by the Surface Rights Board (“SRB” or “Board”). Compensation orders of the SRB may be appealed by either party to the Court of Queen’s Bench (“Court”). The Act has unique rules with respect to the costs of those appeals and those rules are the subject of an interesting decision recently issued by the Court.

In Lemay v Canadian Natural Resources Limited, 2020 ABQB 250, the Lemays, the Landowners, applied to the Board to increase the compensation payable under a surface lease of farmland. The SRB varied the rate of compensation downward from $5,450 to $5,400 per year. The Lemays appealed this ruling to the Court, which dismissed their appeal. The issue of costs was disputed by the parties, which resulted in the Court issuing a costs decision.

Section 26 of the Act provides that when an Operator appeals a compensation order, it must pay the Landowner’s costs, regardless of the outcome, unless there are “special circumstances to justify” the award of costs on another basis. Where the appeal is by the Landowner, section 26 provide for different costs depending on the outcome. If the Landowner is successful, the Operator must pay costs “on the basis of the lawyer’s charges to the client” (i.e., solicitor-client costs). But if, as was the case here, the Landowner appeals and loses, costs are payable under the Alberta Rules of Court (“Rules”) to the party, if any, that the Court in its discretion may direct. In other words, even if the Landowner loses, costs could be awarded against the Operator, or not awarded at all, and in any event the costs would not be on a solicitor-client basis but rather on a “party-party” basis (i.e., following the Tariff of Costs in the Rules of Court), which is generally much lower than solicitor-client costs.

The Arguments

CNRL’s position was that as the successful party it was entitled to costs in the amount of $42,848.12, pursuant to Schedule C, Column 1 of the Rules. The Lemays’ position was that each party ought to bear their own costs, but if the Court found that CNRL was entitled to costs, they should be awarded in the amount of $1,312.50, being 75% of Column 1, on the basis that the appeal was akin to a special chambers application rather than an appeal hearing.

The Decision

Ultimately, the Court awarded CNRL costs of $4,937.00, taking into consideration its authority and discretion under the appeal provisions of the Act, the factors to be considered pursuant to the Rules, and policy considerations. The award would have been even smaller had the Court not accepted CNRL’s argument that an inflationary adjustment of 25% should be made to account for the amounts in Schedule C of the Rules being outdated[1]

It is clear that one of the driving factors for awarding CNRL only a modest amount of costs was that the Court concluded that CNRL’s success on appeal was mixed. While CNRL was successful in opposing the Lemays’ request for an increase in compensation, it had argued for a substantial decrease, which argument was largely rejected by the SRB. 

CNRL sought second counsel fees for the appeal hearing, and costs for both counsel’s travel from Calgary to Grande Prairie for the appeal hearing. CNRL argued that they were entitled to elect to have their usual counsel represent them, as opposed to retaining local counsel, as CNRL has a lengthy solicitor-client relationship with its counsel who consequently have a unique understanding of the interplay of the appeal with CNRL’s broader corporate strategy. While the Court did not disagree that parties have the right to select counsel of their choice or to hire more than one counsel, it held that the ultimate question to be answered with regard to costs is whether the other side should be required to pay for those choices. In this case, the Court answered that question in the negative.

The Lemays argued that the Court needed to take into account the policy consideration that awarding CNRL the costs it sought would have a “chilling effect on landowners” bringing legitimate appeals to the Court and defeat “the fundamental objective of access to justice in situations that are akin to expropriations”. The Court accepted that the Act’s costs scheme does favour landowners, which it said “makes sense, given the impact of the statutory scheme on the landowners’ property rights, the significant disparity in resources of the average landowner compared to the average operator, and the small compensation amounts which may well be in issue”.

The Court also reflected on the foundational Rules with respect to resolving issues before the Court in a timely and cost-effective way. The Court reiterated that modern costs rules are designed to:
  1. at least partially indemnify successful litigants for the costs of litigation;
  2. facilitate access to justice;
  3. discourage frivolous claims and defences;
  4. discourage inappropriate procedural conduct by litigants; and
  5. encourage settlements.
At the end of the day, the Court found that while success was mixed, it was the Lemays who filed the appeal, thereby necessitating “a minimum number of steps and a consequential amount of legal work” by CNRL in order to respond. The responsibility for reasonable costs in the normal course is the risk borne by an unsuccessful appellant in all litigation. However, the very modest amount of costs awarded to CNRL suggests the Court was influenced by both the unique “landowner friendly” costs provisions in the Act, and the related policy consideration of not restricting access to justice.

[1]  Effective May 1, 2020, the Alberta Rules of Court Amendment Regulation, AR 36/2020 will increase the individual Schedule C tariff amounts by approximately 35% to account for inflation since 1998. Column 1 will apply to claims up to and including $75,000.