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Bill 22: cutting “red tape” by reducing Cabinet oversight

Energy Bulletin
By Anna Seefeldt (Summer Student) with assistance from Alicia Quesnel and Robyn Finley

Bill 22, the Red Tape Reduction Implementation Act (Bill 22), passed third reading in the provincial Legislature on July 15, 2020 and received Royal Assent on July 23. The amendments to the legislation affected by Bill 22 will come into force upon proclamation. This omnibus bill will enact changes to 14 statutes across six ministries. Overall, these changes are intended to promote job creation and economic growth by eliminating unnecessary procedural burdens and bureaucratic barriers on Albertans and businesses.

One of the ways in which Bill 22 attempts to reduce "red tape" is by limiting the amount of oversight that the provincial Cabinet (Cabinet) has over provincial Ministries. Of particular note to the oil and natural gas industry is the removal of certain Cabinet approvals required under the Mines and Minerals Act RSA 2000 c. M-17 (the MMA) and the Oil Sands Conservation Act (OSCA) RSA 2000 c. O-7. Moreover, Bill 22 will also remove Cabinet oversight under the Marketing of Agricultural Products Act RSA 2000 cM-4 and the Municipal Government Act RSA 2000 cM-26.

Changes to the Mines and Minerals Act

Greater freedom for the Minister to enter into agreements

Previously, Cabinet was required to authorize the Minister of Energy (the Minister) to enter into agreements with any individual or government in respect of mines and minerals, pursuant to section 9 of the MMA. These "section 9 agreements", also known as Crown agreements, are used to accommodate resource development activities, and may relate to the recovery, processing, or sale of a mineral, the development of mines and mines or quarries, the storage of substances in subsurface reservoirs, and the royalty reserved to the Crown in right of Alberta on the minerals recovered. Bill 22 amends section 9 of the MMA to remove the requirement that Cabinet approve contracts and agreements related to the above-listed categories—the Minister can now enter into contracts without Cabinet's oversight. The government has indicated that this change will allow the Minister to grant tenure more quickly, reducing delays for approvals by three to six months.

Increased Ministerial discretion to grant petroleum and natural gas storage rights

Bill 22 amends section 57(5)(c)(i) of the MMA, removing the requirement for Cabinet to authorize a grant of petroleum and natural gas storage rights. Pursuant to section 57 of the MMA, where a person owns the title to petroleum and natural gas in given lands, that person is the owner of the storage rights with respect to every underground formation within those lands. A person who has storage rights in respect of a subsurface formation has the right to recover any fluid mineral substance stored there, to the exclusion of any other person who has the right to recover a mineral from the same lands. This process allows minerals such as natural gas to be produced in periods of relatively low demand, injected into storage and withdrawn when demand increases.

Under the changes brought about by Bill 22, where the Crown in right of Alberta owns the storage rights, they are now issued in one of three ways: (1) under a unit agreement to which the Crown is party; (2) under a contract entered into under section 9(a) of the MMA or; (3) under an agreement issued under the regulations or under section 9. Allowing the Minister to grant storage rights without Cabinet approval is intended to cut delays and further simplify the approval process.

Ministerial discretion for section 9 royalties reserved to the Crown

The Government of Alberta owns approximately 81% of the mines and minerals in the province, with the rest being owned by the federal government or held privately as freehold mineral rights. It manages these resources on behalf of Albertans and charges royalties to energy resource owners for the right to develop the land and extract resources. Collectively, the amendments to sections 9 and 50(5)(d) of the MMA set out in Bill 22 provide the Minister the discretion to approve changes to royalty rates payable to the Crown. Each producing oil or gas well or oil sands project has its own royalty rate based on factors including the price the resource is sold for, the volume produced and the capital costs to begin production. The amendments in sections 9 and 50 of the MMA do not change the framework of how royalties are calculated in Alberta; the Royalty Guarantee Act will not be affected. Instead, the amendments in Bill 22 allow the Minister to determine the royalties paid to the government without Cabinet's oversight when contracts and agreements are entered into pursuant to section 9, falling in line with the government's objective to reduce barriers to approval.

Changes to the Oil Sands Conservation Act

The Alberta Energy Regulator has sole approval over proposed oil sands projects and processing plants

Bill 22 amends sections 10 and 11 of the OSCA to remove the legislative requirement that proposed oil sands projects and processing plants receive approval from Cabinet. All projects that involve the recovery of oil sands and crude bitumen are affected; as well as facilities used for obtaining crude bitumen, oil sands products and stand-alone gas fractioning plants. Supplementing these changes are amendments to sections 14 and 15 of the OSCA, which remove the need for Cabinet's authorization for amending and cancelling proposals. It should be noted that before the changes, Cabinet was not required to oversee approvals for experimental schemes where the total quantity of energy recovered annually did not exceed 12.5 petajoules, and approvals for other schemes where the total energy recovered annually did not exceed five petajoules. The removal of Cabinet oversight is also not unprecedented – some interventionist orders under the Oil and Gas Conservation Act, RSA 2000 c O-6 previously required the approval of Cabinet before becoming effective until this requirement was removed in 2009.

The result of the changes to the OSCA leaves final decision-making power with respect to all new oil sands projects in Alberta vested in the Alberta Energy Regulator (AER). Cabinet will continue to have certain responsibilities, but will not be involved in the approval of new oil sands projects or processing facilities. Pursuant to AER Directive 023, oil sands project applications must provide information requirements for approval of a scheme for the recovery of oil sands, crude bitumen or products derived therefrom in order to meet the needs of both Alberta Environment and Parks and the AER. Such project applications require project descriptions, technical information, impact assessments, environmental protection plans, reclamation plans and waste management. These guidelines apply to all commercial oil sands projects, although some additional information may be required for large-scale projects and some information may not be required for smaller projects.

These requirements, including Alberta's environmental protection regime, will not be impacted by the amendments to the OSCA. The government has indicated that the change is only intended to speed up the approval process for projects, potentially by as much as 10 months. Estimated processing times currently vary, but for new in situ projects, for example, the application alone takes an estimated 375 business days. A drastic delay in the approval process can also be seen in the Prosper case (Prosper Petroleum Ltd v Her Majesty the Queen in Right of Alberta) which provided evidence that on average Cabinet delay takes approximately four months, and with the exception of Prosper Petroleum Ltd.'s Rigel project, the longest delay had been seven months. In Prosper, the AER approved the project in 2018, but Cabinet still had not made its decision by 2020.

The government's obligation to consult Indigenous groups

Although the amendments to the OSCA are not intended to change the approval process beyond increasing its efficiency, giving the AER final authority on energy projects has been also been met with criticism. Fort McKay First Nation (FMFN) has asserted that rather than reducing "red tape", removing Cabinet oversight may increase uncertainty and delay for industry because of the government's duty to consult, and the principle of the honour of the Crown. The changes will result in the AER being the final decision-maker in respect of the adequacy of consultation efforts with Indigenous groups and communities.

The honour of the Crown is a principle that stems from section 35 of the Constitution Act, 1982, which codifies the existence of Indigenous rights, and sets out the Crown's obligation to act honourably in its interactions with Indigenous peoples. This principle is always at stake when a government, federal or provincial, deals with Indigenous groups. The duty to consult refers to a process of consultation and accommodation between a government and an Indigenous group. It is an ongoing process, and can be triggered by knowledge or claims of an Indigenous claim to a resource, land or practice. Consultation is based on a spectrum, dependent on the strength of the Indigenous claim and the seriousness of the potential impact on the right. The changes in the OSCA set out in Bill 22 do not purport to excuse the Crown from discharging the duty to consult—the Government of Alberta's intent is to re-assign the obligation to consult within government. FMFN voiced concerns that Indigenous groups may be forced to turn to the courts more frequently to resolve regulatory and constitutional conflicts because the government will no longer play a role in the approval process, and the AER lacks expertise in Treaty rights. In support, FMFN cited the recent case Fort McKay First Nation v Prosper Petroleum Ltd where the AER argued that it had no jurisdiction with respect to assessing the adequacy of Crown consultation.

However, in the 2017 decision Chippewas of the Thames First Nations v Enbridge the court held that the Crown can fulfill its duties to consult through regular regulatory processes as long as the administrative body possesses the statutory powers to do what the duty to consult would require in particular circumstances and the affected Indigenous groups are made aware that the Crown is relying on the processes and procedures of the administrative body. Other case law has made clear that Cabinet has the jurisdiction to impose additional terms and conditions in any proposed project approval to address the Crown's constitutional responsibilities. The Government of Alberta has indicated that the consultation process will not be altered with the amendment of the OSCA; constitutional obligations will continue to be fulfilled by the provincial government in right of the Crown.

Implications of the changes in Bill 22

The changes to Bill 22 in the MMA and OSCA are intended to cut "red tape" and increase the speed of the approval process and Crown agreements. This is an ongoing endeavour by the government to simplify business in the province and provide greater certainty that projects will be approved in order to give comfort to potential investors. More "red tape reduction" bills can be expected in the future in line with these goals.

As ministers start to make decisions previously reserved for Cabinet as Bill 22 comes into force, it will become clear if projects and transactions proceed more efficiently, or if there will be an uptick in legal challenges to decisions by the Minister of Energy and the AER, in particular, bringing further delays. Although the government has indicated that the sole purpose of the changes is to increase efficiency by decreasing wait times for approvals to get on Cabinet's agenda, it is possible that unintended consequences will create future complications for participants in Alberta's oil and natural gas industry.