Ontario Energy Board says landowners should have right to decide on removal of abandoned pipelines

In its decision last week approving (with conditions) Union Gas' Hamilton to Milton NPS 48 pipeline project, the Ontario Energy Board ("OEB") filled a number of gaping holes in Ontario's pipeline abandonment regime.  As noted by the Gas Pipeline Landowners of Ontario ("GAPLO") in its submissions to the OEB, Ontario has virtually no rules or regulations to deal with the abandonment of provincially-regulated pipelines.  Decisions about how a pipeline will be abandoned (mainly, whether it will be removed from the ground or abandoned in place) are left to the pipeline company, with no public approval process or public hearing process in place.

GAPLO requested that the OEB require Union Gas to offer affected landowners a form of easement agreement that includes a landowner option for removal of the pipeline upon abandonment.  As part of its project approval function under the Ontario Energy Board Act, the OEB must approve the form of easement agreement to be offered by a company to affected landowners.  In its recent decision, the OEB accepted GAPLO's position and ordered Union to offer an easement agreement that includes the landowner option for pipeline removal on abandonment.

The following are excerpts from the OEB's reasons related to this issue:

The overriding consideration for the OEB is the control the landowner should have with
respect to how the land is to be treated upon pipeline abandonment. The OEB heard
evidence from Union that leaving an abandoned pipeline in place would be less
disruptive to the land than removing it. The OEB also heard evidence from GAPLO that
this might be true over the short term, but that over the longer term impacts such as
subsidence could be more disruptive if the pipeline were not removed. GAPLO
witnesses testified that for agricultural land the condition of the land is fundamental.
Their testimony indicated that this is not just a question of a farmer’s passion for the
land; it is that the condition of the land is fundamental to the farmer’s livelihood.

The OEB finds that the landowner should have the right to decide whether an
abandoned pipeline should be physically removed from the ground or dealt with through
whatever other means of abandonment may be proposed by Union. Once construction of a pipeline on a piece of property is approved, the landowner is giving up certain rights to Union, as a distribution utility, in the public interest. However, should that pipeline no longer be needed, the landowner should be able to make the fundamental decision about how the land is to be restored.

This is not a debate about deciding in advance what should be done with a pipeline that
is abandoned at a point potentially decades from now. The issue is who should make
the decision at that time. [emphasis added]

Read the full decision at: Union Gas Dawn to Parkway.

OEB launches Energy East consultation

The Ontario Energy Board has set up a website with information about its pending public consultation on the TransCanada Energy East Project.  Although the project falls within the federal jurisdiction, the Province of Ontario intends to participate in the approval process as an intervenor and is seeking comments on the positions it should be taking on the following four areas of "potential impact":

The impacts on Ontario natural gas consumers in terms of rates, reliability and access to supply, especially those consumers in eastern and northern Ontario

The impacts on pipeline safety and the natural environment in Ontario

The impacts on local communities as well as First Nations and Métis communities

The short and long term economic impacts of the project in Ontario

Public meetings will be scheduled for February and March, 2014.

The website can be accessed at: The Ontario Energy Board Energy East Consultation.

 

Divisional Court comments on OEB approval of forms of landowner agreements

As part of its decisions to approve energy transmission projects, the Ontario Energy Board (OEB) approves the form of agreement to be offered to landowners affected by the approval.  Recently, the Ontario Divisional Court decided an appeal of a decision to approve the construction of electricity transmission lines for a wind energy project in which the appellant argued that independent legal advice (ILA) clauses in the approved landowner agreements were "confusing, misleading and unfair".

The OEB may only approve a project where the applicant has satisfied the Board that it has offered or will offer to each landowner affected by the approved route, an agreement in a form approved by the Board. 

The party that appealed the OEB decision was Conserve Our Rural Environment (CORE) Inc.  It argued that the ILA clause in some of the 6 forms of land agreement to be approved was false and misleading because it gave the impression that the party requiring ILA was the tenant (the project proponent) rather than the landlord (the landowner).  ILA was to be obtained by the tenant even though it was the tenant who had prepared the agreements.

The Divisional Court determined that the appeal was not on a question of law or jurisdiction, which was the only basis on which the appeal could be made.  The OEB's authority to approve the form of contract is discretionary, and an arguably unreasonable exercise of discretion is not an error of law or jurisdiction.  Therefore, the Court dismissed the appeal.

In the event that it was wrong in this determination, the Divisional Court also went on to decide the appeal as if a question of law or jurisdiction had been raised.  It found that the applicable standard is one of reasonableness, and it found that the decision of the OEB was reasonable.  The Court stated, "It is important to understand that what the Board approved was a form of agreement which is the subject of subsequent negotiation between the parties.  It represents terms from which the party propounding the project may not unilaterally resile."

Read the decision at: Conserve Our Rural Environment v. Dufferin Wind Power Inc.

Court of Appeal confirms gas storage rights expired - farm still owns rights

The Ontario Court of Appeal recently confirmed that a farm operation (through a related company) owns the right to inject and store gas into and under its lands.  As a result, the gas storage company that wishes to commence storage operations is going to have to pay compensation for those rights.  In most cases, landowners have already transferred the storage rights to an oil and gas extraction company for less than the current market value of those rights. 

In this case, the Court of Appeal confirmed a lower court decision that found a 1998 gas storage lease between Tribute Resources Inc. and the landowner had expired because Tribute had not taken the issue of designation of the lands as a Gas Storage Area had not been taken to the Ontario Energy Board within 10 years of the date of the agreement:

This Gas Storage Lease Agreement shall terminate on the tenth anniversary date, if an only if, the Lessee or some other person has not applied to the Ontario Energy Board to have the said lands or any part thereof designated as a Gas Storage area on or before the tenth anniversary date hereof.

In spite of that clause, Tribute had argued at first instance and on appeal that its gas storage rights were not limited to the 1998 agreement.  There were earlier agreements (an Oil and Gas Lease and a Unit Operation Agreement) that mentioned gas storage rights.  However, both levels of court ruled that the 1998 agreement was intended to and did replace the earlier agreements.  When that agreement expired, Tribute retained no gas storage rights.

The issue of compensation for the storage rights will be determined by further agreement or by the Ontario Energy Board pursuant to the Ontario Energy Board Act.

Read the Court of Appeal decision at: 2195002 Ontario Inc. v. Tribute Resources Inc.

Ontario Court rules it can decide gas storage lease case

Justice Bryant of the Ontario Superior Court of Justice has ruled in favour a landowner in a gas storage related case, finding that the Court is in a position to determine issues related to leases.  Recently, Ontario courts have ruled on the exclusive jurisdiction of the Ontario Energy Board over gas storage in Ontario.  However, that exclusive jurisdiction only arises where there has been an order designating a gas storage area pursuant to the Ontario Energy Board Act. 

In this particular case, Justice Bryant found that the Court retained its inherent jurisdiction to rule on the leases because no designation order had yet been made by the Ontario Energy Board.  This decision is another in a growing line of decisions related to this matter.  Originally, Tribute Resources had taken over oil and gas and gas storage leases on the lands of McKinley Farms Limited in Huron County.  However, a previous ruling of the court, upheld on appeal, found that the gas storage lease terminated.  The Court of Appeal did rule that the oil and gas lease remained effective.  McKinley then signed a new gas storage agreement and oil and gas lease with a numbered company related to McKinley. 

In 2011, the numbered company applied to the Superior Court for declarations that its gas storage lease permits the storage of gas beneath the McKinley lands and that Tribute has no right under its gas and oil lease (which was not declared void by the Court of Appeal) to store gas.  Tribute then filed an application asking the Court to rule that it had no jurisdiction to decide the application by the numbered company and that the relief sought by the numbered company was within the exclusive jurisdiction of the Ontario Energy Board.  This application, as reported above, was dismissed.

Read the decision at: Tribute Resources v. 2195002 Ont. Inc.

Dawn Gateway Pipeline Project cancelled

Dawn Gateway LP has advised the Ontario Energy Board that it will not be proceeding with the construction of the Bickford Dawn pipeline.  Dawn Gateway LP has also advised Union Gas Limited that it will not proceed with the purchase of the St. Clair Pipeline.  Dawn Gateway says that it is not proceeding with the project as a result of market conditions and "rate payer harm impacts". 

The Dawn Gateway pipeline project was earlier the subject of a constitutional decision by the Ontario Energy Board.  Originally, the pipeline was proposed as a federally-regulated project.  The National Energy Board dismissed concerns expressed by affected landowners that the project was not federal and that, if it proceeded as a federal project, landowners would be negatively affected.  However, the Ontario Energy Board ruled that the project would be provincial and accepted that some of the concerns of the landowners were valid.

OEB dismisses most of gas storage compensation claim

The Ontario Energy Board (OEB) has recently decided a gas storage case that follows on the heels of a Court of Appeal decision that determined that the OEB has exclusive jurisdiction to decide questions of compensation.  The applicants before the OEB were the claimants in the case dismissed by the Court of Appeal.  The applicants made an application to the OEB under section 19 and section 38(2) of the Ontario Energy Board Act, 1998 for a number of heads of relief.  In particular, the application under section 19 was for an order of the OEB determining that the contracts between the applicants and Union Gas Limited have been terminated.  The application under section 38(2) was for an order determining the quantum of compensation to which the applicants were entitled.

The OEB has now partially dismissed the application on a motion for summary judgment filed by Union Gas Limited.  In doing so, the OEB applied the test under Rule 20 of the Ontario Rules of Civil Procedure.  The OEB was satisfied that there was no genuine issue requiring trial with respect to at least part of the claim made by the applicants.  Union made two arguments on why the application should not be heard by the OEB.  Firstly, Union argued that there was significant delay on the part of the applicants bringing the application.  Secondly, union argued that it had binding compensation agreements with the applicants, which, together with the OEB's 1993 gas storage area designation order, have superseded any prior agreement between Union, its predecessors, and the applicants.

The OEB found that Union's rights to inject gas into, store gas in and remove gas from the Edys Mill Pool, and to enter into and upon the land in the area and use land for such purposes was governed solely by the designation order, and has been since 1993.  The designation order supersedes any previous agreement with respect to Unions rights to inject store and remove gas.  Whether previous contracts between the parties relating to the right to inject, store or remove gas have been formally canceled or not is essentially irrelevant as these rights are now governed by the designation order.

It was also noted by the OEB that the applicants' allegations of unspecified breaches of the designation order were not supported by any evidence or particulars.  Even if there had been breaches of the designation order, it was not clear to the OEB that such breaches would be the proper subject of a hearing under section 38 of the Act.  As there was no basis for any finding in this proceeding that Union had committed any breaches of the designation order, the OEB dismissed claims based on those alleged breaches.

With respect to just and equitable compensation under section 38 of the Act, the OEB determined that it had no jurisdiction over gas storage on the applicants' lands during the period prior to the designation order.  During the period from the designation order in 1993 to 1999, the OEB determined that the applicants had been paid compensation by Union pursuant to Unions gas storage leases.  Therefore, the OEB dismissed the claims for compensation for the period 1993 to 1999.

The period 1999 to 2008 was covered by a compensation order made by the OEB.  The applicants were members of the Lambton County Storage Association (LCSA), which had negotiated an agreement with Union with respect to compensation.  The board ruled that it had dealt with compensation issues in that order in a final manner and that no party affected by it may seek additional or other relief for the period of time it covers.  The fact that the OEB has jurisdiction over compensation does not mean that the OEB can revisit the issue.

The OEB accepted that it could hear an application with respect to compensation owed to some of the applicants for the post-2008 period.  There was no agreement in place between Union and some of the applicants and the OEB could set the level of compensation under section 38 of the Act.

Read the OEB decision at: Knight et al. v. Union Gas.

Ontario Energy Board releases latest version of guidelines for pipeline construction in Ontario

The Ontario Energy Board has released the 6th edition of its guidelines concerning the construction and operation of energy pipelines in Ontario:
Environmental Guidelines for the Location, Construction and Operation of Hydrocarbon Pipelines and Facilities in Ontario.

Ont. C.A. confirms Ontario Energy Board exclusive jurisdiction over gas storage

The Ontario Court of Appeal has dismissed an appeal by several Lambton County gas storage landowners of the summary dismissal of their claims against Union Gas Limited (Union) for:

• breach of contract - the appellants claim that Union, in breach of their gas storage leases (GSLs), has failed to properly compensate them for crop loss and other lost income arising from Union’s storage operations (statement of claim, at paras. 26-27);

• unjust enrichment - the appellants claim that Union has been unjustly enriched by storing gas on and in the appellants’ land (statement of claim, at para. 28(b));

• nuisance - the appellants claim that Union’s storage operations, which have decreased the profitability of their land, caused damage to their land and decreased their enjoyment of the land, constitute a nuisance (statement of claim, at para. 36);

• negligence - the appellants claim that due to Union’s storage operations, oil has not been produced from the Edys Mills Storage Pool since 1993 and, as a result, the appellants have not received royalty payments since that time (statement of claim, at para. 37(c)); and

• termination of contract - the appellants seek a declaration that their GSLs were terminated in 2006, along with compensation from Union on the basis that it is storing gas without a contract (statement of claim, at paras. 34-35).

In September 2008, Union moved for summary judgment dismissing the action against it on several grounds, namely: (i) that the Superior Court has no jurisdiction to entertain the claim, as it falls within the exclusive jurisdiction of the Ontario Energy Board (OEB); (ii) that the claims are statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “LTA”); and (iii) that the claims are barred by the doctrines of res judicata or abuse of process.

The Court of Appeal dealt only with the issue of the OEB's jurisdiction, which was the basis on which the Superior Court had initially dismissed the landowners' action.  Under the Act, the Board has broad jurisdiction to regulate the storage of natural gas, to designate an area as a gas storage area, to authorize the injection of gas into that area, and to order the person so authorized to pay just and equitable compensation to the owners of the property overlaying the storage area.  Section 38(3) of the OEB Act provides that no civil proceeding may be commenced in order to determine that compensation.  On these and other bases, the Court of Appeal found that the OEB has exclusive jurisdiction to determine all issues of law and fact arising from the appellants' claim against Union, including the validity of gas storage contracts. 

Read the Court of Appeal decision at: Snopko v. Union Gas Limited.