Canada Has a New Sheriff in Town -- Lessons for FERC

On June 21, the Canadian Parliament passed a bill which replaces Canada’s National Energy Board (NEB) with a new agency called the Canadian Energy Regulator (CER). This legislation also revised the environmental review process for pipeline projects and established time limits for reviews by the new CER. Today we look at some of the key provisions in this new law and compare the new time limits to the review times in the United States. Our conclusion is that the adoption of similar time limits in the United States would require FERC to accelerate its review on about half of smaller projects subject to FERC review. In addition, FERC may want to consider the regulatory uncertainty caused by this new legislation in Canada as it looks at whether and how to change its Certificate Policy Statement.

What Led to the Demise of the NEB?

The impetus for the new legislation was a perception that the NEB was too cozy with the industry it regulated and would often simply rubber stamp massive projects that had significant environmental and human health risks, thus undermining Canada’s ability to tackle climate change. As a result, during the 2015 election, Canadians expressed displeasure with the process for environmental reviews of projects and demanded greater public participation in the review process.

The new law has five major themes:

Providing for timely and predictable decisions
Broadening the public’s participation in the review process
Strengthening safety and environmental protection
Increasing the participation by indigenous people
Modernizing the governance structure of the energy regulator

The new law also requires that the environmental aspects of large projects, including all projects with more than 75 km of new right-of-way, be reviewed by a new agency, the Impact Assessment Agency of Canada (IAAC). The IAAC will lead all reviews of major projects, working with the CER and in cooperation with the provinces and territories.

Timeliness of the Reviews

For the industry, a key aspect of any regulatory process is the predictability and timeliness of project reviews. While this is supposed to be a key theme of the new law, the industry is somewhat skeptical of the rigidness of the new timelines. New pipeline projects are divided into three classes:

Small projects, including pipeline projects of less than 40 km, will be reviewed by the CER and undergo a full impact assessment within 10 months.
Medium projects, including pipeline projects of more than 40 km, but less than 75 km of new right-of-way, will be reviewed by the CER, undergo a full impact assessment within 15 months, and must be approved by the Cabinet. (In Canada's parliamentary system of government, the Cabinet is the committee of ministers, chaired by the Prime Minister, that exercises executive authority.)
Large projects, including all pipeline projects with more than 75 km of new right-of-way, will undergo an integrated review process led by the IAAC with the support of the CER, and be subject to a two-year limit for the review, and must be approved by Cabinet.

We have looked at the projects that have been reviewed by FERC in our dataset and have split them into these same categories, based on the amount of pipeline that was proposed to be built. As shown below, these review times, if implemented by FERC, would mostly impact the review time for the smaller projects FERC has reviewed. However, the industry is skeptical about the effectiveness of these limits because, as reflected in the Canadian Senate’s summary of the bill, “the government would be able to extend [these] time limits.”

Small Projects

Medium Projects

Large Projects

Greater Public Participation

A key new requirement is that all of the large projects that will require review by the new IAAC, must go through an “early engagement process” and the NEB (on behalf of the CER) has proposed a similar process even for the smaller and medium projects that are not subject to IAAC review. This process is a lot like FERC’s voluntary pre-filing process and is expected to last approximately six months. The schematic of the process set forth below is very similar to the FERC’s pre-filing schematic:

As our data shows, the time spent in the formal pre-filing process at FERC is often much longer than six months and can stretch beyond a year in length. So the use of this new process may take much longer for the first few projects that are required to comply with it, especially since the government would be able to extend this time limit, just as it can most others found in the law .

Strengthening Safety and Environmental Protection

The new law changes the principle used during the environmental review process and no longer focuses solely on an environmental assessment but instead is designed to be an impact assessment based on the principle of sustainability and how the project may impact Canada’s ability to comply with its climate change commitments. The law also broadens the scope of assessments to include positive and negative environment, economic, social and health impacts, as well as require gender-based analysis to support “holistic and integrated decision-making” and an assessment of the impacts on Indigenous peoples and their rights. The main concern by the pipeline industry about these new requirements is uncertainty over the implementation of the new requirements and how additional factors may slow the review process even more.

The Bottom Line

The new law has not come into force and is not expected to be declared effective until new regulations can be implemented. So for now, the NEB’s website states that it will continue to carry out its mandate under the NEB Act and that the NEB is well positioned to “ensure a smooth transition to the CER.” There is some expectation that the legislation will be challenged in court. The premiers of five provinces, Ontario, New Brunswick, Manitoba, Saskatchewan, and Alberta, as well as the Northwest Territories, all sent a letter to Prime Minister Trudeau urging him to accept a number of amendments, most of which were ultimately rejected, because the Premiers feared the bill would “make it virtually impossible to develop critical infrastructure, depriving Canada of much needed investment.” Following the law’s adoption, Jason Kenney, the premier of Alberta, indicated that he intended to challenge the law in court for being an unconstitutional infringement on provincial authority.

In the meantime, the uncertainty it creates is probably the biggest issue. For a law that was intended to bring timely and predictable decisions, it does not seem likely that this uncertainty will be resolved to industry’s satisfaction any time soon. It is also a lesson FERC may want to consider as it decides whether and how to change its Certificate Policy Statement. While improvements in processes can be beneficial, change itself can bring uncertainty and that uncertainty can reduce the benefits of any proposed improvements, at least in the short term.

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