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 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.

Dawn Gateway conducts open season for proposed pipeline

Dawn Gateway Pipeline Limited Partnership and Dawn Gateway Pipeline, LLC (collectively “Dawn Gateway”) is conducting a binding open season for firm transportation between MichCon’s Belle River facility and Union Gas’ Dawn Hub (“Dawn”). At least 80,000 Dth/d is available for a minimum term of 7 years.  Dawn Gateway first announced its international pipeline project in September 2008, and sought to have the pipeline regulated by the federal National Energy Board (NEB).  As a result of interventions before the Ontario Energy Board (OEB) by consumer groups and directly affected landowners, it was determined that the Dawn Gateway pipeline will fall within provincial jurisdiction.

The initial open season resulted in the sale of approximately 80% of the available capacity. In March 2010, Dawn Gateway received all required OEB approvals for the Canadian portion of the pipeline. Shortly thereafter, Dawn Gateway was approached by the anchor Shippers requesting a delay of the in-service date, delaying the construction of the pipeline.

Read more about the open season at: Dawn Gateway Open Season.

Read comment on Snopko v. Union Gas decision by Professor Nigel Bankes, University of Calgary

Professor Nigel Bankes of the University of Calgary, Faculty of Law, has posted a comment on the recent decision of the Ontario Court of Appeal in Snopko v. Union Gas.  The case confirmed the OEB's exclusive jurisdiction over gas storage in Ontario.  With respect to the Court's decision on the jurisdiction of the Board to determine the validity of private contracts, Bankes notes:

What appears to be unusual about the present case i.e. the Snopko decision is that it concludes that some matters that might appear to be matters of private law are so closely connected with the core elements of an energy regulator’s jurisdiction (here the jurisdiction to deal with holdouts when assembling a gas storage project and the power to set compensation accordingly) that the ordinary courts must decline jurisdiction even though the issues are presented by the plaintiff as private law matters e.g. invalidity of a lease and even unconscionability. This clearly goes beyond confirming the power of the regulator to decide points of law as a necessary element in exercising its jurisdiction; instead the decision accords to the regulator an exclusive original jurisdiction over a broad range of matters. One wonders if this is not a step too far? Is the OEB really the best place to decide whether an agreement is tainted by unconscionability? Even if it has the ability to do so as a necessary part of deciding other issues that may be put to the Board does it follow from this that a plaintiff cannot submit these issues to a s.96 Court?

Read the comment at: ABlawg.ca.

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.