Bill 12 – Problematic Legislation That Should Never Be Proclaimed

Alberta’s Energy Minister Marg McCuaig-Boyd introduced Bill 12, The Preserving Canada’s Economic Prosperity Act, on Monday and stated that the province, “absolutely intends to use it if we need to,” on Tuesday. The government should never be given that chance.

Bill 12 is potentially in direct violation of the limits of provincial powers which are very clearly set out in the Constitution. It certainly would be if it were used as intended: to shut off the taps to BC. For a province that relies on free, unfettered trade of resources, measures such as this set a precedent as bad or worse as those set by BC Premier John Horgan’s intention to regulate bitumen shipments in BC.

Before you go any further with my post, you should read this from Nigel Bankes.

Okay, now you’re back. Good. To understand why I think this Bill sets such a dangerous precedent, you have to look at what powers it conveys to the Government of Alberta and how those powers are contradictory with clearly articulated powers in the Constitution Act and/or in clear conflict with existing federal legislation. It might help to consider whether you’d like a province to have these powers if they were abused rather than used for what you consider a noble cause.

The absurdly-named Preserving Canada’s Economic Prosperity Act essentially conveys the power to enact a requirement for very specific export licenses to be held by those who would ship Alberta oil, gas, or refined products out of the province. In general terms, this authority already exists under the Gas Resources Preservation Act and similar legislation could easily be enacted for oil.  Where this legislation becomes problematic is in the specifics of how the licenses would be allocated, what they would specify, and the coverage of refined products. The Act first defines the conditions under which the Minister (note, not the Alberta Energy Regulator) could require licenses to be held for export:

Before making an order (requiring a person or persons to hold an export license), the Minister shall determine whether it is in the public interest of Alberta to do so having regard to:

(a) whether adequate pipeline capacity exists to maximize the return on crude oil and diluted bitumen produced in Alberta,

(b) whether adequate supplies and reserves of natural gas, crude oil and refined fuels will be available for Alberta’s present and future needs, and

(c) any other matters considered relevant by the Minister.

There are two issues with this section: scope and coverage. Under Section 92A of the Constitution Act, provinces, “may make laws in relation to the export from the province to another part of Canada of the primary production from non-renewable natural resources.”  Section 2(1) of Bill 12 refers to refined products which (oddly) do not fall under the primary production from natural resources, which are defined so as to include crude oil and natural gas but, “not a product resulting from refining crude oil, refining upgraded heavy crude oil, refining gases or liquids derived from coal or refining a synthetic equivalent of crude oil.” As such, it’s not at all clear that the Province has the right to enact the powers it is attempting to here over refined products, although it clearly does have the broad power to restrict exports in the case of crude oil, synthetic crude oil, and bitumen and other resources.

Things get messy from there, however, as the section allows the Minister to impose a requirement for a license selectively. This provides an arbitrary level of authority to the Minister which is, at best, concerning.  While the Minister’s hands in making such an order are moderately tied by subsection (3) show above, there’s a whole lot of discretion and importantly no guarantee that all similar companies be treated equally. It’s not hard to see how such a power could be abused and could run afoul of NAFTA and other relevant policies.

The Bill becomes much more problematic when you reach Section 4. Here, the Minister’s powers to set the terms of the proposed licenses are established. The subjectivity here is extreme:

The Minister may impose any terms and conditions, including all or any of the following:

(a) the point at which the licensee may export from Alberta any quantity of natural gas, crude oil or refined fuels;

(b) the method by which natural gas, crude oil or refined fuels may be exported from Alberta;

(c) the maximum quantities of natural gas, crude oil or refined fuels that may be exported from Alberta during the interval or intervals set out in the licence;

(d) the maximum daily quantities of natural gas, crude oil or refined fuels that may be exported from Alberta;

(e) the conditions under which the export from Alberta of natural gas, crude oil or refined fuels by the licensee may be diverted, reduced or interrupted;

(f) the period for which the licence is operative.

The provincial government is certainly within its right to regulate the total quantities and/or daily quantities of a wide variety of resource products which may be exported from Alberta.  They could, without exceeding their jurisdiction, establish licenses to this effect and make them tradeable among firms if they so chose. But, Alberta does not have the constitutional authority, at least so far as I can tell, to regulate the point and method by which exports take place, nor does it necessarily have any authority to interrupt specific exports which would otherwise be permissible with respect to aggregate export restrictions.  The powers conveyed by Bill 12 are much broader than that: since these proposed licenses could be instituted such that they are only required by certain firms, the Minister could stipulate that a particular oil company was no longer able to export crude-by-rail (the method of export) to BC (the point of export), for example. Of course, that’s exactly the threat intended by the legislation: it’s supposed to enable Alberta to restrict specific exports to BC while not restricting total exports.

The Constitution Act could not be more clear that this is not permissible: Section 92A (2) states that laws (in relation to the export of natural resources from the province) may not authorize or provide for discrimination in prices or in supplies exported to another part of Canada. Bill 12 clearly creates the authority for the province to do that which it it not permitted to do under the Constitution.

Bill 12 also creates provincial powers in other areas of clear, federal jurisdiction.  It contemplates export apportionment, in which the Minister may offer a license for, “a lesser quantity than had been proposed in the application for the licence,” and suggests that the Provincial government will begin granting export permits with regard to the available pipeline capacity. In so doing, the government will likely be over-stepping into areas of NEB responsibility where apportionment processes already determine which barrels are shipped on constrained pipelines. More importantly, the Bill will likely contravene NEB regulation and reservation of pipeline capacity. For example, NEB regulation reserves capacity for specific uses (including refined product movement) on the Transmountain system.  Alberta government efforts to intervene to change the mix moved on that pipeline system would run afoul of the same areas of NEB jurisdiction as any of Premier Horgan’s would-be efforts to limit bitumen shipments in NEB-regulated pipelines.

Since this debate over pipelines began in earnest last Fall, Jason Kenney and others have been calling on the federal government to invoke clause 92(10)(c) of the Constitution, which allows the federal government to exert authority over infrastructure such as pipelines which, “although wholly situate within the Province, are before or after their Execution declared by the Parliament of Canada to be for the general Advantage of Canada or for the Advantage of Two or more of the Provinces.”  This clearly doesn’t apply in the case of the TransMountain pipeline, but Alberta’s Bill 12 might give the federal government a reason to use it.

Section 8 of Bill 12,  on orders to cease transporting, is clearly aimed at using provincial authority over pipelines within Alberta to thwart the operation of federally-regulated pipelines: it says so right in the bill.  It defines a Provincial Pipeline as a natural gas, crude oil or refined products pipeline that delivers natural gas, crude oil or refined fuels into an extra-provincial pipeline. The Act then gives the Minister the authority to make an order directing an operator to cease transporting products in that pipeline. That seems doomed to fail, as more than a century of case law dating back to the early days of the railroad suggests that provincial measures that directly thwart interprovincial infrastructure may be overruled by federal jurisdiction using 92(10)(c) and this would be a prime example of when it should be (and has historically) been used. While these actions on pipelines seem doomed to fail, Bill 12 also proposes to allow the provincial government to wield this authority over railroads. This makes the pipeline parts of the bill seem gloriously conservative. I would be shocked if the railroads are not in Court to oppose this on the day the legislation is proclaimed, if that day ever comes.

I opened this piece by suggesting that this was a much larger step outside of provincial constitutional authority than Premier Horgan’s efforts to stop TransMountain.  Here’s why: as UBC’s Jocelyn Stacey (among others) has argued, BC has clear constitutional authority to regulate on the environment, on pipelines, and on spill response. Regulations BC imposed in this regard would be legal/constitutional, but, “if the Court determines a provincial regulation would impair the operation of a vital or essential part of the Trans Mountain pipeline, then it will rule that that regulation does not apply to the project.” That’s not the case for Bill 12.  Bill 12 steps far outside Alberta’s constitutional authority by regulating exports to specific destinations and by means of transport and by providing provisions to issue cease-transportation orders on railways and (indirectly) inter-provincial pipelines moving Alberta resources.  In also over-extends Alberta’s authority to regulate refined product exports at all, as those seem to fall outside of provincial authority as specified under Section 92A. (Nigel Bankes is a little more nuanced in his examination of this question here)

Alberta’s new Bill 12 represents, I would argue, the furthest any provincial legislation has gone toward limiting the unfettered interprovincial trade of oil and gas. Even Lougheed, the the depths of the National Energy Program, acted to restrict production and to ensure that Alberta retained the authority to limit total exports of natural resources so that the province would not be entirely subject to federal whim.  Monday’s Bill steps far beyond that into territory that a province that relies so much on free trade of resources should be loathe to tread. Alberta’s government has been pushed here by opposition and industry clamouring for it to do something, to punish BC.  We all need to take a breath before we wind up harming the very industry and undermining the very economic union that we’re purporting to defend and that we rely on for our prosperity.