Oil – Law
On April 14, 2022, CNOOC Marketing Canada (“CNOOC”) applied for an order requiring PKM Canada North 40 Limited Partnership (“Pembina”) to allow CNOOC and its sublessees to access pipeline facilities for receiving, transporting, and delivering oil from interconnecting pipelines (the “Connection Facilities”) at the Trans Mountain Edmonton Terminal on reasonable terms (the “Application”).
CNOOC requested an order:
Declaring that Pembina contravened ss 235 and 239 of the Canadian Energy Regulator Act (“CER Act”) by refusing to provide the access requested by CNOOC;
Directing Pembina to consent to the receipt, transportation, and delivery of oil offered by CNOOC or its sublessees for transmission on the Connection Facilities from the point where the Connection Facilities interconnect with the feeder and downstream pipelines that CNOOC or its sublessee elect to use to deliver and receive oil from the Edmonton Terminal, as may change from time to time, to the point where the Connection Facilities connect with the terminal tanks leased by CNOOC; and
Directing Pembina and CNOOC to negotiate in good faith to determine reasonable commercial terms for CNOOC and its sublessee’s use of the Connection Facilities, failing which either party may apply to the CER for determination of the reasonable commercial terms for that use.
During the proceeding, CNOOC clarified it was also seeking relief against Trans Mountain Pipeline ULC (“Trans Mountain”) as the operator of the Edmonton Terminal.
The CER granted partial relief against Pembina by directing it to consent to receipt, transportation, and delivery of oil offered by CNOOC for transmission on the Connection Facilities from the Woodland Pipeline if operationally feasible and if CNOOC requests this connectivity for itself or as part of a request to sublease otherwise permitted by a terminal services agreement. The CER directed Pembina and CNOOC to negotiate in good faith to determine reasonable commercial terms for such connectivity, failing which, either party could apply to the CER for determination of the reasonable commercial terms for that use.
The CER issued the following directions to Trans Mountain:
The Commission directs Trans Mountain to amend its Rules and Regulations Tariff (currently Tariff No. 105) to clarify its nomination verification processes (section 6.2 of the Tariff) at the Edmonton Terminal. This includes which portions of the Terminal Services Agreement (TSA) (e.g., the Dedicated Facilities or the operational description of inbound connecting pipeline facilities) or other method Trans Mountain will use to verify a shipper’s ability to deliver Petroleum into Merchant Tanks.
Trans Mountain must consult with all interested parties in developing the amendments. Within 90 days from the issuance of this Decision, Trans Mountain must file with the CER draft tariff amendments, a summary of any outstanding concerns, and an indication of how Trans Mountain will address any outstanding concerns. Trans Mountain must copy all interested parties.
Canadian Energy Regulator Act, SC 2019, c. 28, s10 – ss 32, 34, 68(1), 225, 226, 239.
The CER identified the central issues to be whether Pembina or Trans Mountain or both had contravened ss 235 or 239(1) of the CER Act by failing to allow CNOOC to transport product into Tank 35 from the Woodland Pipeline through the Connection Facilities.
The CER held that it has full and exclusive jurisdiction to determine matters within its mandate, pursuant to sections 32 and 34 of the CER Act and broad authority to make orders with respect to all matters relating to traffic, tolls or tariffs pursuant to section 226 of the CER Act.
In case of a complaint, the complainant must establish a prima facie or arguable case for the CER to establish a process. Once that prima facie case is established, the burden of proof shifts to the other party, in this case, both Trans Mountain and Pembina, to establish compliance with the CER Act. Each party must adduce evidence supporting its position, known as the persuasive burden, and the complainant still has the burden to prove entitlement to its requested relief. The standard of proof for all parties is on a balance of probabilities.
The CER found that, in these circumstances, complaint-based economic regulation is appropriate. Trans Mountain, as a Group 1 company, is subject to full economic regulation, including detailed reporting requirements and tolls and tariffs, subject to the CER’s approval. However, this type of oversight over the Merchant Tanks is unnecessary, given the merchant tank arrangements that the NEB initially approved. The economic regulation of the Merchant Tanks, which respects the merchant tankage arrangements in place at the Edmonton Terminal, does not, however, frustrate the key purposes of Part 3 of the CER Act and the CER’s role as an economic regulator of pipeline facilities within its jurisdiction.
The Connection Facilities
The CER found that Pembina does not have exclusive rights to the Connection Facilities, which are owned and operated by Trans Mountain and provide service not only to the Merchant Tanks but also to other parts of the Edmonton Terminal. Trans Mountain is obligated to fully comply with all applicable regulatory requirements in the CER Act in respect of the Connection Facilities and cannot grant exclusive use of these facilities or effectively contract out of its common carriage and other regulatory obligations via the Tankage Agreement or otherwise.
The CER acknowledged that Pembina has the right to use the Connection Facilities to access the Merchant Tanks. However, the scope of this right would not allow Pembina to exclude shippers from the Connection Facilities or direct Trans Mountain to do so. The CER also confirmed that Trans Mountain cannot contract out of its statutory obligations, such as subsection 239(1), in respect of the Connection Facilities.
Unjust Discrimination by Pembina
The CER found that section 235 of the CER Act applies to Trans Mountain, as operator of the Trans Mountain Pipeline System, and to Pembina, as a provider of services on CER-regulated pipeline facilities at the Edmonton Terminal. The CER also concluded that no implicit exemption from this provision was granted to Pembina.
The CER believed that Pembina’s commercial practices do not determine the applicability of section 235 and, since this section prohibits only unjust discrimination, facts and circumstances of commercial practices would only be relevant to the consideration of whether discrimination is not unjust.
The CER found that Pembina discriminated against CNOOC when, for a period of time in 2021, it declined to allow inbound connectivity from the Woodland Pipeline and refused to participate in negotiation regarding CNOOC’s request for this connectivity. The CER determined that Pembina did not discharge its burden to demonstrate that the discrimination was not unjust by failing to offer a robust justification for the resulting discrimination.
Unjust Discrimination by Trans Mountain
The CER found that Trans Mountain’s verification practices were consistent with its tariff obligations and that, as a result, Trans Mountain did not discriminate. However, since CNOOC was unaware of how Trans Mountain conducts verification with respect to shipments involving the Merchant Tanks at the Edmonton Terminal, the CER directed Trans Mountain to amend its Rules and Regulations Tariff to clarify its nomination verification processes at the Edmonton Terminal.
Because Pembina is not the operator of the facilities in question, the CER determined that the common carrier obligation does not apply to Pembina. Conversely, the common carrier obligation applies to Trans Mountain, which has met its obligation.