Ottawa’s last-minute interventions in energy projects eroding Canadian regulators’ independence

By Julius Melnitzer | December 22, 2022

Uncertainty about who ultimately makes energy decisions and how they are made is among the largest stumbling blocks to Canada’s chances of achieving net zero by 2050, according to a recent study from the University of Ottawa’s Positive Energy group.

“The road to net zero requires an unprecedented remaking of our energy systems that includes a huge build-out of infrastructure,” said Monica Gattinger, Positive Energy’s chair and co-author of the report. “And achieving that remake in a timely and efficient fashion means we must focus on our decision systems and make sure they are effective.”

That starts with clarity on the policy front.

“Our report emphasizes the need for clear policies that allow independent regulators to make truly independent decisions in a timely fashion, and that avoids politicians coming in with late-stage decisions that upend the efforts of the regulatory process,” Gattinger said.

Currently, that clarity is lacking.

“What we’re hearing is there is a real disconnect between energy policy and energy regulation, particularly around climate change,” Gattinger said. “The real danger is that emissions reductions goals are causing governments to intervene in ways they have not done before, and there’s potential for that intervention to be counterproductive.”

On the federal front, Canada’s Energy Regulator (CER) can only make recommendations to Cabinet regarding the fate of proposed federal pipeline projects. Cabinet has had the last word on approval or rejection since 2012.

The difficulties with that process, Gattinger adds, become apparent on examination of the Feds’ recent approval of a $2.3-billion expansion of TC Energy’s NGTL System, which connects most natural gas production in western Canada to domestic and export markets.

NGTL filed its application with the National Energy Board (NEB) in 2018, before its successor, the CER, inherited the proceedings. While the application proceeded under the provisions of the National Energy Board Act, the CER’s powers are fundamentally the same under the 2019 Canada Energy Regulator Act that now governs.

In February 2020, the CER released a 330-page report recommending approval of the project. Cabinet endorsed it in October, finding that it was “not likely to cause significant adverse environmental effects…”

But the endorsement was not unconditional. Cabinet “strengthened” five conditions imposed by the CER and added a new one. The changes, described by Ottawa as necessary to “better address” Indigenous rights and mitigate impacts on caribou habitats, were made unilaterally, without any discernible public or formal process, and without giving NGTL an opportunity to make submissions.

According to a Project Energy report prepared by Rowland Harrison, a faculty affiliate and previously a National Energy Board member for 14 years, the new conditions addressed issues that the CER had “reviewed extensively,” meaning that cabinet was “in effect rejecting the advice of a specialist tribunal established for the very purpose of considering such matters.”

It also meant that transparency was lacking.

“Transparency is a bedrock principle for maintaining a robust, effective regulatory framework,” Harrison concluded.

Gattinger’s broader investigation, which included examination of historical case studies at the CER, the British Columbia Oil and Gas Commission, the Alberta Energy Regulator, the Ontario Energy Board, and the Nova Scotia Utility and Review Board, examined the relationships between regulators and other actors in the energy-decision making systems, including policy-makers, the courts, Indigenous and municipal governments, other regulatory authorities and all members of civil societies.

“We examine these relationships through two lenses: effectiveness and independence,” the study states. “What constitutes an effective energy decision-making system, what defines an independent regulator, and how does independence influence the effectiveness of decision system?”

Regulatory independence, the study concludes, is “under tremendous pressure.” Contributing forces include the emergence of broader societal goals beyond the traditional scope of energy regulation, particularly climate change, and the rapid rethinking of business models for energy supply and delivery as a result of technological change.

Indeed, most energy regulatory systems are outdated.

“A great many were built between 1950 and 1970,” Gattinger says. “But we’re in a different world now, one that’s confronting multiple imperatives simultaneously.”

Three elements, Gattinger explains, are fundamental to effective energy decision making: functionality in the sense of getting the job done; adaptability in the sense of evolving with changing circumstances; and legitimacy in the sense of sustaining broad public confidence.

And behind all three stands regulatory independence.

“Importantly, the degree of decision making independence of a regulatory agency shapes not only the effectiveness of the regulator but also of the system overall,” the Gattinger study concludes.

To be sure, trade-offs are inevitable in pursuing effectiveness and independence — particularly in Canada.

“Federalism exacerbates the problem, because we have so many kinds of energy production across varied regions and jurisdictions who may have different priorities,” said Stephen Bird, who specializes in energy issues as a professor of public policy at Clarkson University in Potsdam, New York, and is a research affiliate at Positive Energy. “At the same time, we have to figure out how to regulate new technology, such as hydrogen production in a variety of different forms and small-scale modular nuclear reactors.”

It’s critical that governments give regulators the tools to deal with these issues.

“We need well-financed regulatory institutions that feature high-quality people who can make decisions informed by the best policy experts, the best science and a high level of stakeholder engagement,” Bird said. “This will allow us to do things effectively and quickly, as opposed to, for example, the current eight-year regulatory cycle for pipeline approval.”

A more coherent approach to energy decision-making would also go a long way.

“But that’s a difficult nut to crack, especially because we don’t really have good tools for dealing with the tensions that arise between jurisdictions,” Bird said. “The process would be less conflicted and more-oriented to problem solving if we brought policy-makers together on a more regular basis or set up an advisory structure instead of everyone arguing their case in the media.”

But nobody, it seems, is calling for a complete overhaul of Canada’s energy decision-making process.

“Informed reform is necessary, but it’s really important not to throw out the baby with the bath water,” Gattinger said. “And we’re not looking at a single overall reform, because the need for reform will vary from jurisdiction to jurisdiction.”

Ultimately, certainty is the goal.

“Overturning decisions and late-stage ministerial directives or conditions on a project, whether coming from cabinet or otherwise, should be relatively rare occurrences because they reduce functionality and legitimacy and create a great deal of uncertainty,” Gattinger said.

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Julius Melnitzer is a Toronto-based legal affairs writer, ghostwriter, writing coach and media trainer. Readers can reach him at julius@legalwriter.net or https://legalwriter.net/contact.

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