Jurisdiction over the Coastal GasLink project

Publication August 2019

The National Energy Board (NEB) recently released its decision confirming that the proposed Coastal GasLink natural gas pipeline falls outside federal jurisdiction and as a result, neither the NEB nor its successor, the Canada Energy Regulator, will regulate it.

The NEB’s decision applies the test from the earlier Westcoast decision concerning projects located exclusively within a single province. Based on the specific purpose of the Coastal GasLink project and its level of integration with the larger NGTL System, including evidence of management, control and direction, neither branch of the Westcoast test was made out. Notably, however, the case diverges from an earlier BC pipeline decision involving facts similar to the Coastal GasLink project.


Background

The Coastal GasLink Pipeline Ltd. project (CGL Project) is a 670-kilometre natural gas pipeline located entirely within British Columbia. It is designed to transport natural gas from the Western Canadian Sedimentary Basin (WCSB) to the LNG Canada marine export terminal (LNG Canada Terminal) in Kitimat. Natural gas produced from the WCSB is gathered and transported by the NGTL System, which is owned and operated by a subsidiary of TC Energy Corporation (TCE, formerly TransCanada PipeLines Limited). The larger NGTL System crosses the BC-Alberta border and is regulated by the NEB. 

The CGL Project received its provincial environmental assessment certificate in 2014 and its permits from the BC Oil and Gas Commission for construction and operation in 2015. Construction is currently underway. TCE has not yet applied to connect the CGL Project to the NGTL System, but will do so in the future.

The challenge to BC’s jurisdiction to regulate the CGL project

In 2018, the NEB received an application from Michael Sawyer, a BC resident, who requested that the board determine whether the CGL Project is within federal jurisdiction under section 92(10)(a) of the Constitution Act, 1867, and is regulated by the NEB under the National Energy Board Act. Mr. Sawyer argued that because TCE intends to eventually connect the CGL Project to the NGTL System, the CGL Project will extend beyond the BC border into Alberta, making it an interprovincial undertaking within federal jurisdiction.

A work or undertaking located wholly within a province is subject to federal regulation if it meets one of two key indicia established in Westcoast Energy Inc v Canada (National Energy Board)

  1. it is part of a federal work or undertaking in the sense that it is “functionally integrated and subject to common management, control and direction”; or 
  2. it is “essential, vital and integral” to a federal work or undertaking.1 

    [emphasis added]

Mr. Sawyer relied on the recent Federal Court of Appeal decision of Sawyer v TransCanada Pipeline Limited,2 in which he had successfully argued that the very similar Prince Rupert Gas Transmission Project (PRGT Project) fell within federal jurisdiction. Based on nearly identical circumstances, the Federal Court of Appeal determined in Sawyer that the PRGT Project, on its face, satisfied both branches of the Westcoast test. Just like the CGL Project, the (now cancelled) PRGT Project would have connected WCSB gas to a BC marine export terminal and have been wholly within BC.

Unsurprisingly in this case, Mr. Sawyer used the PRGT Project as a “blueprint” for his position and argued that both branches of the Westcoast test were met based on the fact the CGL Project and the NGTL System are functionally integrated, and TCE exercises common management, control and direction of NGTL and CGL. 

In response, TCE argued it had neither applied to connect the CGL Project to the NGTL System, nor did the CGL Project meet either branch of the Westcoast test. TCE argued the CGL Project and NGTL System would not be functionally integrated, because they serve two different functions: the CGL Project serves the LNG Canada Terminal, whereas the NGTL System serves various customers in multiple locations. 

Regarding management, control, and direction, TCE acknowledged it would manage both the CGL Project and the NGTL System, and would apply similar engineering standards, policies and procedures, and the expertise of its personnel to both. However, TCE argued this is not sufficient to conclude that the CGL Project and the NGTL System are subject to common management, control, and direction.

NEB’s decision on jurisdiction

Following a public hearing with oral arguments from TCE and intervenors, the NEB released its decision on July 26 finding that:

  • On the first branch of the Westcoast test, the CGL Project was not functionally integrated with the NGTL System because it served the downstream, provincially regulated LNG Canada Terminal, and was not key to the upstream, federally regulated NGTL System. The NGTL system was not the exclusive or main provider of gas supply for the CGL Project. Furthermore, there was insufficient evidence to support a conclusion that the CGL Project and the NGTL System were subject to common management, control, and direction.
  • On the second branch of the Westcoast test, the CGL Project’s physical connection to the NGTL System was insufficient to make the CGL Project a part of the NGTL System. Nor would the CGL Project be “essential, vital, or integral” to the NGTL System.

The NEB rejected a number of other novel arguments made by participants in the hearing. Among other findings, the NEB determined there is no presumption of provincial or federal jurisdiction for a work or undertaking, because each case is determined on its own facts, and no presumption of deference to government actors arises on a jurisdictional analysis. Furthermore, a jurisdictional analysis does not incorporate a “reasonable person’s standard” or concept of environmental protection.

Implications and next steps

The NEB’s decision reflected the submissions of many energy industry actors, ranging from producers to offtakers to pipelines companies. Multiple provincial attorneys general also made submissions supporting provincial jurisdiction. The decision is likely to be appealed. Appellate arguments are likely to re-engage with how the NEB distinguished the PRGT decision and whether the CGL Project could be considered “vital” to the federal undertaking of international gas export.

Leave to appeal the NEB’s decision on jurisdiction to the Federal Court of Appeal must be sought by August 25, 2019.


Footnotes

1   Westcoast Energy Inc v Canada (National Energy Board), [1998] 1 SCR 322 at paras. 46 and 49 [Westcoast].

2   Sawyer v TransCanada Pipeline Limited, 2017 FCA 159 [Sawyer].


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