A big step toward public confidence in federally regulated pipelines: Canada's proposed financial requirements unveiled

Vincent Light and Allison Sears - 

With the publication of the Pipeline Financial Requirements Regulations in Part I of the Canada Gazette on September 29, 2016, the federal government provided pipeline companies a first glimpse at the absolute liability (i.e. liability without proof of fault or negligence) regulatory regime first set out in the Pipeline Safety Act, SC 2015, c. 21 (PSA), which amended the National Energy Board Act, RSC 1985, c. N-7 (NEBA).

The PSA, which came into force on June 19, 2016, provided the National Energy Board (NEB) with jurisdiction over pipelines post-abandonment, and provided the NEB with powers to assume control of pipelines in the event of a release. The PSA also established a limit of liability without proof of fault or negligence of $1 billion for pipelines carrying at least 250,000 barrels of oil per day. Determination of absolute liability limits for all other pipelines was, however, left to be prescribed by regulation. 

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Pan-Canadian Carbon Plan

Jason Kroft, Jonathan Drance and Luke Sinclair - 

What does it mean for you 

As of January 2018, all Canadians will be paying a price for carbon.

The Announcement

After much anticipation, Justin Trudeau recently announced that Canada would implement a national price on carbon by 2018. The announcement was met with significant media fanfare and a touch of provincial dramatics, but a closer look reveals that Trudeau’s carbon plan may uncover more questions than answers.

The following will highlight what we know and, almost as importantly, what we don’t know about Trudeau’s Pan-Canadian Approach to Pricing Carbon Pollution (the Plan).

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Climate file update

Jason Kroft and Luke Sinclair - 

These continue to be busy times for those interested in the business and policy of carbon in Canada and elsewhere.  Below is a snapshot of some recent developments of note.

NY Climate Week

This week marks the eighth annual climate week in New York City and government officials, academics, industry representatives and other interested parties are meeting to discuss the global transition to a “low-carbon” economy. In the past, the rhetoric around climate change has often been muted. However, the recent ratification of the December, 2015 UN Paris Agreement on climate change matters by both the U.S. and China has brought climate change and in particular, the issue of carbon pricing, into the forefront of both government and industry discourse. The general acceptance of some type of carbon pricing scheme has transformed the key question from “will there be a price on carbon?” to “what will the price on carbon be?” This question of the level or quantum of carbon price will be a central item in the debates in Canada for the months and years to come.

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Package and Bump transactions not subject to GAAR

Kevin Guenther

When BPC Properties Ltd. (BPC) and Oxford Properties Inc. (Oxford) entered into an agreement relating to the sale of Oxford to BPC in August 2001, Oxford agreed to complete a pre-closing reorganization of its business.  Oxford dropped various properties down into several limited partnerships on a tax deferred basis by utilizing subsection 97(2) of the Income Tax Act (Canada) (the ITA), with those partnership interests subsequently being bumped under paragraph 88(1)(d) of the ITA.

After the completion of the purchase and sale transaction, BPC completed a second bump by transferring certain bumped interests into newly formed property-specific limited partnerships, and subsequently wound-up the upper-tier limited partnerships under subsection 98(3) of the ITA, using the bump rules in paragraph 98(3)(c) of the ITA.

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Recent hybrid debt offerings of $1.2B by Canadian issuers

Doug Richardson and Julie D’Avignon - 

The recent offerings by TransCanada Trust and Emera Incorporated of U.S. $1.2 billion of hybrid debt (Hybrid) have created particular interest in this type of financing.  Hybrids are noteworthy for several reasons, including:

  • Hybrids have been around for many years and were originally popular with banks and insurance companies.  Regulatory changes arising from the financial crisis of 2008 and other factors have curtailed the use of Hybrids in the financial sector.  However, Hybrids remain attractive for many types of issuers.
  • The Hybrid qualifies for Basket “C” equity treatment by Moody’s Investor Service, Inc. and for “Intermediate Equity Credit” by Standard & Poor’s Ratings Services, meaning the principal amount of the Hybrid qualifies as 50% equity and 50% debt for credit rating calculations.  Therefore, Hybrids are especially attractive to issuers seeking to maintain their investment grade rating.
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Cap and Trade in Ontario - Avoiding the EU's Pitfalls

 P. Jason Kroft and Sam Dukesz - 

The European Union Emission Trading System (EU ETS) is the world’s largest cap and trade system, covering all countries in the European Union. It is also one of the world’s most troubled, as it has largely failed to live up the expectations of emissions reductions that it was initially touted to bring about. This blog post analyzes the impediments to the success of EU ETS, and then provides a forward-looking analysis of the applicability of those impediments to the proposed Ontario cap and trade program. 

A Snapshot of the EU ETS: Program Design and Implementation Problems

The EU ETS was initially implemented in phases, with a pilot Phase I from 2005-2007, followed by a Kyoto Phase II from 2008-2012 and a number of subsequent phases. The initial system covered approximately half of EU CO2 emissions across 31 EU countries. The system was limited to certain sectors, as many sectors, such as transportation, were exempted because of concerns about competitiveness with non-participating jurisdictions. 

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Welcome clarity for Quebec's oil and gas industry: the new Petroleum Resources Act is introduced

Erik Richer La Flèche -

Mindful not to repeat the mistakes of its predecessors, Premier Couillard’s government continues very deliberately to lay down a modern and comprehensive framework for hydrocarbon exploration and production in Quebec.

After many studies and considerable consultation, Energy and Natural Resources Minister Pierre Arcand tabled Bill 106 before the National Assembly on June 7, 2016. Bill 106 (An Act to implement the 2030 Energy Policy and to amend various legislative provisions) does three things:

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Six Months and Counting for Ontario Cap-and-Trade - Are You Ready?

A Mining Sector Primer

Canada is turning a new leaf on climate change and this will have a real impact on consumers and business. Ontario’s cap-and-trade program, expected to launch January 1, 2017, will require certain emitters to obtain allowances equal to their total emissions. There is some skepticism around this date. Regardless of when introduced, carbon pricing (placing a real cost on the emissions created by business and consumers) is a new reality for those operating in Ontario and elsewhere in Canada

What does this all mean for you?

  • The Ontario provincial government is beginning to implement a program to limit carbon and similar emissions by business.
  • Over time most businesses will need to consider the financial burden (and opportunity) presented by the cap-and-trade regime in Ontario (and similar regimes elsewhere in Canada).
  • The program begins with the largest emitters and gradually increases the scope to include most businesses in the Province with fewer exemptions and ultimately an increased cost.
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Over the First Hurdle and into the Sharks: The NEB Recommends Approval of the Trans Mountain Pipeline Expansion Project

Allison Sears - 

1.The NEB’s Findings

After reviewing tens of thousands of pages of evidence during a hearing process that had 1650 registered participants (400 of which had full intervenor status) and lasted 686 days (including two lengthy pauses in the legislatively mandated review timeframe),[1] the NEB has handed Kinder Morgan its first victory on the long road toward the twinning of its existing Trans Mountain pipeline system between Edmonton, AB and Burnaby, BC (the Project). In OH-001-2014,[2] the NEB recommended that the Cabinet approve the Project, which will nearly triple the system’s capacity to ship oil from 300,000 bpd to 890,000 bpd, as being in the national public interest subject to 157 conditions. In this regard, the Board placed “significant weight” on the economic benefits of the Project. Particularly, the considerable benefits to national and regional economies associated with providing producers with increased flexibility and optionality in getting their product to market, as well as with the jobs created across Canada. The Board also noted the considerable benefits to regional and local economies associated with significant spending on pipeline materials.

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Key Developments in Canadian Private Markets Law | Oil & Gas Focus - Q1 2016

Jennifer McPherson and Chip Johnston - 

The following is an overview of key developments in Canadian law and regulatory practice applicable to private M&A in the oil and gas industry from January 1 to March 31, 2016.

Oil & Gas Regulatory

The NEB approved, for the first time, a 40-year liquefied natural gas export licence for the Shell-led LNG Canada Development facility in Kitimat, British Columbia.

Alberta’s NDP announced a summary of a Modernized Royalty Framework it intends to implement. While important details have yet to be worked out, industry’s preliminary reaction has been positive

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