Date: 20080422
Docket: A-420-06
Citation: 2008 FCA 146
CORAM: LINDEN J.A.
NADON J.A.
PELLETIER
J.A.
BETWEEN:
ANADARKO CANADA CORPORATION, BP CANADA ENERGY
COMPANY, CHEVRON CANADA LIMITED, DEVON CANADA
CORPORATION, and NYTIS EXPLORATION
COMPANY INC.
Appellants
and
NATIONAL ENERGY BOARD, IMPERIAL OIL
RESOURCES
VENTURES LIMITED, CONOCOPHILLIPS CANADA (NORTH)
LIMITED, SHELL CANADA LIMITED, APACHE
CANADA LTD.,
AYONI KEH LAND CORPORATION, ENCANA
CORPORATION,
GOVERNMENT OF THE NORTHWEST TERRITORIES, INUVIALUIT
REGIONAL CORPORATION, K'AHSHO GOT'INE
LANDS
CORPORATION, MOSBACHER OPERATING LTD., PARAMOUNT
RESOURCES LTD., PETRO-CANADA OIL and GAS,
and TALISMAN
ENERGY INC.
Respondents
REASONS FOR JUDGMENT
PELLETIER J.A.
[1]
This
is an appeal from the decision of the National Energy Board (the NEB) dated
July 10, 2006, in which the NEB declined to make an order declaring that the
Mackenzie Gathering System (MGS), when constructed, was subject to Part IV of
the National Energy Board Act, R.S.C. 1985, c. N-7 (NEB Act). The
peculiarity of the application before the NEB is that the MGS is being
constructed pursuant to approvals obtained under the Canada Oil and Gas Operations
Act, R.S.C. 1985, c. O-7 (COGO Act), legislation which applies to
projects whose scope is entirely within the Northwest Territories. The
application raised the question as to whether a project can be authorized under
one piece of legislation and be regulated, for some purposes, under another. The
NEB concluded
that it could not. I agree.
THE FACTS
[2]
These
proceedings arise in the context of the development of the Mackenzie Valley
Pipeline (MVP), a portion of a larger project known as the Mackenzie Gas Project
(MGP).
[3]
The
MGP consists of the anchor fields which will produce natural gas for the
downstream market, the Mackenzie Gathering System (MGS) which will collect and
transport that natural gas to the Inuvik Area Facility (IAF), and finally the
MVP, a natural gas pipeline which will provide natural gas transmission
facilities from the IAF to the existing natural gas pipeline system in northern
Alberta. The same system, with some additions will also handle natural gas
liquids. The appellants have defined the issue as whether the MGS is sufficiently
connected to the MVP so that the two constitute a single interprovincial undertaking.
[4]
The
following description of the operation of the anchor fields, the MGS and the MVP
is taken from the appellants' memorandum of fact and law:
Anchor Fields
…
11. The
production and processing facilities for each of the three anchor fields will
be functionally similar. Each field will have well-site facilities, pipelines
(that are sometimes referred to as flow lines), a gas processing or
conditioning facility, process utility systems, and related infrastructure.
12. The flow
lines with the production site of each anchor field will gather production from
well-sites and transport it to the anchor field's gas processing or conditioning
facility. The gas processing or conditioning facility at each anchor field will
separate the liquids (i.e. NGLs, if any, and free water) from the gas stream,
and dehydrate and measure both the gas stream and the NGL stream. The gas and
NGL streams will then be recombined and cooled for delivery into, and
transmission by, the Mackenzie Gathering System.
Mackenzie
Gathering System
…
15. The
Mackenzie Gathering System, as defined by [its] proponents, will be comprised
of the following facilities: (a) a 190 kilometre two phase pipeline … from the
anchor fields to the Inuvik Area facility; (b) the Inuvik Area Facility, which
is a facility to be constructed in the vicinity of Inuvik for the separation,
further processing, and pressurization of gas and NGLs for onward
transmission; and (c) a natural gas liquids pipeline (" NGL Pipeline")
for the onward transmission of the NGLs from the Inuvik Area Facility to Normal
Wells. In this context, the expression "two-phase" means that the
pipeline from the anchor fields to the Inuvik Area Facility will simultaneously
transmit natural gas in a vapour phase and NGLs in a liquid phase.
16. The Inuvik Area
Facility portion of the Mackenzie Gathering System will separate the gas and
the NGL streams for a second time. Each stream will then be pressurized for
onward transmission on the Mackenzie Valley Pipeline (in the case of gas) and
the NGL pipeline (in the case of liquids).
17. The NGL
pipeline portion of the Mackenzie Gathering System will provide transmission
service for the NGLs over a route of 457 kilometres from the Inuvik Area Facility
to Norman Wells for delivery to the existing Enbridge Pipelines (NW) Inc.
liquids pipeline and further transmission to downstream markets. The NGL Pipeline
will, for the most part, share a common right-of-way with the Mackenzie Valley
Pipeline.
Mackenzie Valley
Pipeline
18. The
Mackenzie Valley Pipeline … will be a natural gas pipeline that will provide
transmission services over a route of 1,194 kilometres from the Inuvik Area
Facility into northern Alberta where it will connect
with an extension of an existing natural gas pipeline system in order to
provide access to downstream markets.
[5]
The
rationale for the original application to the NEB is found in
paragraphs 39 and 40 of the appellants' memorandum of fact and law:
39. Because the NEB
Act will apply to the construction and operation of the Mackenzie Valley
Pipeline, shippers on that pipeline will have the benefit of the Part IV
protections. However, so long as COGOA, and not the NEB Act,
applies to the Mackenzie Gathering System – which is the effect of the NEB
Decision – the same protections will not available to shippers on the Mackenzie
Gathering System. This is so notwithstanding that the Mackenzie Gathering
System and the Mackenzie Valley Pipeline will together form a single,
integrated, pipeline transmission system and that the [Applicants] and other
third-party shippers will necessarily require services on the Mackenzie
Gathering System in order to access the Mackenzie Valley Pipeline.
40. If
operation of the Mackenzie Gathering System were subject to regulation under
the NEB Act, then shippers would be afforded protection from any
potential exercise of market power by the proponents of the Mackenzie Gas
Project. The NEB could ensure
under Part IV of the NEB Act, and for both the Mackenzie Gathering
System and the Mackenzie Valley Pipeline, that tolls and tariffs are just and
reasonable, terms and conditions of service are not unjustly discriminatory,
and that a procedure for obtaining access to the facilities is available.
[6]
The
applicants before the NEB (the appellants in this Court) argued that the result
in this case was dictated by the decision of the Supreme Court of Canada in Westcoast
Energy Inc. v. National Energy Board, [1998] 1 S.C.R. 322 (Westcoast
Energy). In that case, the Supreme Court of Canada found that a gas
processing plant situated in the province of British Columbia was part of a
single federal undertaking, an interprovincial pipeline, on the basis that it
was functionally integrated with that undertaking and that both were subject to
common management and control. The appellants argued that the same was true in
this case. In support of their argument, the appellants rely on the following
uncontested facts, as related by the NEB:
MEG [the
appellants] asserts
that the MGS [Mackenzie Gathering System] and the MVP [Mackenzie Valley
Pipeline] together pass the Westcoast test since:
They have
been designed, and will be operated, as integrated parts of a single transmission
project.
They will be
functionally integrated and neither can operate without the other.
The MGS will
transmit gas and NGLs for the sole benefit of shippers on the MVP that produce
or procure gas from the anchor fields with there being no other means to do so.
They will
share a supervisory control and data acquisition system, infrastructure,
services, employees, contractors and, for part of the way, a right-of-way.
IORVL
(Imperial Oil Resources Ventures Limited) will be the legal owner and the
operator of both the MGS and the MVP thus providing common ownership,
management, control and direction before and after their in-service date.
[NEB's decision,
Appeal Book, at pp. 11-12.]
[7]
In
light of the nature of the works themselves (their functional integration) and
the nature of the Mackenzie Gas Project's management structure (its operational
integration) the appellants argued that the NEB was bound to
apply Westcoast Energy and to allow their application.
THE BOARD'S DECISION
[8]
After
reciting the facts and the submissions of the various parties, the NEB began by
reviewing the object and scheme of both the COGO Act and the NEB Act. It
found that it was beyond question that the NEB Act applied to the MVP because
it extended beyond the bounds of the Territories. It acknowledged that an
interprovincial pipeline also includes items which are "connected" to
that pipeline but noted that it is the nature of a pipeline that everything
associated with its operation must be connected to it. A pipeline with gaps is
simply a leaky pipe. The question then is what characterizes a connection which
renders a component an integral part of the pipeline as opposed to a
non-integral accessory to the pipeline.
[9]
The
NEB compared the definition of pipeline in each of the NEB Act and the COGO
Act and reviewed the overall scheme of the COGO Act. It noted that the GOGO
Act is intended to deal with gas processing and transportation which occur
entirely within the bounds of the Northwest Territories, which is the
case with respect to the anchor fields and the MGS. It then summarized its
conclusion as follows:
… However, it
does not follow that every gas processing facility that is physically connected
to an NEB-regulated pipeline is part of that pipeline, particularly if that
facility is regulated under a different federal regime. It is the NEB's view that
the IAF is not a work connected to the MVP that is to be regulated by the NEB
Act since it is specifically covered by the COGO Act.
The NEB is of the
view that the services provided by the IAF are expressly required to be
regulated by the COGO Act. The remaining MGS facilities provide gas and NGL
transportation wholly within the NWT and are also required to be regulated by
the COGO Act. Since there is no constitutional question of division of powers
at issue, there is no need to make a determination whether MGS facilities are
integral to the MVP. The express provisions of the COGO Act apply.
As a result,
the NEB dismissed
the application to bring the MGS under the umbrella of Part IV of the NEB Act.
THE
APPELLANTS' POSITION
[10]
The
appellants challenge the NEB's decision on the ground that it is based
upon an error in the interpretation of the relevant legislation. They say that the
NEB erred in law in interpreting the GOGO Act and the NEB Act as it
did, an error which is reviewable on a standard of correctness.
[11]
The
nub of the appellants' argument is found in paragraph 61 of its Memorandum:
61. Simply
stated, it is incorrect to view the components of the Mackenzie Gathering
System separately, as the NEB apparently did, and conclude that they each
can fit the COGOA definitions. It is clear from Westcoast that
the geographical location of the facilities, or whether each will straddle the
Alberta/Northwest Territories boundary, cannot be dispositive; their integrated
operation as an interprovincial undertaking is the essential consideration.
[Appellant's memorandum
of fact and law, at para. 61.]
[12]
The
appellants go on to say that when the Westcoast Energy factors of
functional integration and common operational management and control are
considered, it is clear that the MGS and the MVP constitute a single interprovincial
undertaking subject to regulation under the NEB Act.
DISCUSSION
Standard of review
[13]
The
appellants argue that the problem confronting the NEB was one of
statutory interpretation which attracts the correctness standard. This Court
has held that the standard of review applicable to the NEB's
interpretation of its legislation was correctness: see Sumas Energy 2, Inc.
v. Canada (National
Energy Board) (F.C.A.), 2005 FCA 377, [2006] 1 F.C.R. 456, at para. 8.
[14]
Since
then, the Supreme Court of Canada has decided Dunsmuir v. New Brunswick,
2008 SCC 9, [2008] F.C.J. No. 9, which suggests that it is not necessary to do a
fresh standard of review analysis every time the question arises, particularly
where the conclusion was that the correctness standard applied: see paragraph
57. As a result, I will proceed on the basis that correctness is the
appropriate standard of review with respect to the question of which
legislation applies to the MGS.
THE ISSUE
[15]
The peculiar
aspect of this file is that it looks like a division of powers problem even
though all of the relevant legislation is federal. As it turns out, even in the
absence of provincial legislation, the same question arises. Rather than having
to decide whether provincial or federal legislation applies, the NEB had to
decide whether the IAF and the MGS are subject to the local regulatory scheme,
i.e. that applicable to works contained entirely within the Northwest
Territories (the COGO Act), or to the interprovincial regulatory scheme,
i.e. that which deals with interprovincial pipelines (the NEB Act). The
test to determine which scheme applies is whether the IAF and the MGS are so
integrally connected with the MVP that they form but a single interprovincial
undertaking.
[16]
This
states the problem as though the question were being considered for the first
time. In fact, the issue was previously considered when the proponents of the
IAF and the MGS sought planning and development approval pursuant to the COGO
Act. There was an opportunity at that time for those who thought that those
systems were properly the subject of interprovincial regulation to say so. If
any of them did make such a challenge, it was decided against them because the
projects were approved and are being constructed under the local regulatory
scheme.
[17]
This puts
the problem before the NEB in a different light. The
appellants treat the construction of the facilities in question as though it
were a completely unrelated matter, and ask the NEB to declare that, once
constructed, the IAF and the MGS were subject to Part IV of the NEB Act which deals with tolls
and tariffs to be charged on interprovincial pipelines. The appellants did not
conceal their motives: they were clear that the basis for their application was
to obtain the benefit of the rate approval process under Part IV of the NEB Act so as to protect
themselves from unfair pricing on the MGS. In other words, the applicants
sought to bring the IAF and the MGS under the umbrella of the interprovincial
regulatory scheme for the purpose of filling a gap in the local regulatory
scheme whose application to these projects was not otherwise questioned.
Incidentally, that gap has now been filled by recent amendments to the COGO
Act but those amendments do not affect the principle raised by this case.
[18]
It seems
to me to be obvious on its face that whether a project is subject to the local
or to the interprovincial regulatory scheme, it is so for all purposes. One
cannot have recourse to the analysis contained in the Supreme Court's decision
in Westcoast Energy for the purpose of demonstrating that the IAF and
the MGS are part of a single interprovincial undertaking but that
interprovincial regulatory scheme applies only to the tolls and tariffs to be
charged, and not to the approval of the project or to other regulatory matters.
If indeed, the Westcoast Energy analysis leads to the conclusion that
there is but a single interprovincial undertaking, stretching from the anchor
fields to the downstream end of the MVP, then the NEB's jurisdiction extends to
all those aspects of the undertaking within the scope of the NEB Act.
[19]
The NEB put its finger on this issue when it said
that the COGO Act and the NEB
Act cannot
both apply to a project at the same time. The NEB was not saying that if a project fell
within the broad language of one statute, it was thereby precluded from being
subject to the other statute. It was simply articulating the reality that to
the extent that there exist comprehensive local and interprovincial regulatory
schemes, a project falls to be governed by one or the other of those schemes
and not by both.
[20]
Consequently,
the appellants' arguments based upon Westcoast Energy are simply beside
the point. Those arguments address the question of whether there exists a
single federal undertaking, subject to the interprovincial regulatory scheme. They
do not deal with the question of whether one aspect of a complex project,
authorized and constructed under the aegis of the local regulatory scheme, can
be withdrawn from that scheme and placed under the interprovincial regulatory
scheme. If there is authority in support of such a proposition, it was not
cited to us.
[21]
For
these reasons, I would dismiss the appeal with costs.
"J.D.
Denis Pelletier"
"I
agree
A.M. Linden J.A."
"I
agree
M. Nadon J.A."
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