Upstream Jurisdictional Issues

17 September 1999

TO: PIPELINE COMPANIES SUBJECT TO THE JURISDICTION OF THE NATIONAL ENERGY BOARD (NEB OR THE BOARD)

RE: Upstream Jurisdictional Issues

Recent jurisprudence affecting the jurisdiction of the NEB over upstream production facilities has now clarified the circumstances under which such facilities need not  form part of an application to the Board. The purpose of this letter is to draw attention to these developments and to assist in developing a common understanding of the NEB's jurisdiction.

Westcoast Energy Inc. v Canada (National Energy Board), a 1998 judgement of the Supreme Court of Canada, held that there were two ways in which upstream gathering and processing facilities could come within federal (i.e. NEB) jurisdiction. Firstly, such facilities could come under NEB jurisdiction if they formed part of a single federal work or undertaking, such as an interprovincial gathering line;Secondly, upstream gathering and processing facilities could come within NEB jurisdiction even where they did not form part of a single federal work or undertaking, provided that they were fully integrated with a pipeline under federal jurisdiction.

A March 1999, Federal Court of Appeal judgement entitled Canadian Hunter Exploration Ltd. v The National Energy Board has furthered clarified the issue of upstream jurisdiction. In that case a producer constructed a facility system encompassing upstream gathering lines and processing facilities, which terminated at a central tie-in point. Facilities usually considered to be production facilities, such as separators and dehydrators, were located at the central tie-in point. The central tie-in was also the location of a connection to an interprovincial pipeline owned and operated by the same producers. The Federal Court of Appeal ruled that the existence of the connection between the central tie-in point and the interprovincial line was insufficient to subsume all of the gathering lines and the central tie-in point into NEB jurisdiction.

Counsel and agents representing pipeline companies before the NEB should therefore be aware that a mere connection between an interprovincial pipeline and upstream facilities ordinarily associated with the production of hydrocarbon resources will not, in the absence of other factors, serve to bring the upstream gathering and production facilities within the jurisdiction of the NEB.

Where a connection between upstream gathering and processing facilities and downstream interprovincial transportation facilities exists, the extension of the jurisdiction of the NEB will not include the upstream gathering and processing facilities unless there is a finding that the upstream facilities are integral to the downstream interprovincial pipeline.

On the question of whether upstream facilities are integral to a downstream interprovincial pipeline the decision of the Federal Court of Appeal in the Canadian Hunter case may also be helpful. In Canadian Hunter, the Federal Court of Appeal relied on one of its 1996 decisions, Consumers' Gas Co. v National Energy Board, for the proposition that, in determining whether ostensibly provincial facilities are integral to a pipeline under the jurisdiction of the NEB, a distinction must be drawn between cases where the primary undertaking is federal, and those instances where the primary undertaking is provincial.

In cases where the primary undertaking is federal, even a relatively minor degree of constitutional dependency by the provincial undertaking on the federal undertaking may be sufficient to draw the whole system into the jurisdiction of the NEB. However, where the primary undertaking is provincial, the existence of a substantial interprovincial aspect to the undertaking will likely be necessary in order to draw the entire system within the jurisdiction of the NEB.

The Canadian Hunter judgement provides substantial assistance and clarity to those persons, or companies, who are contemplating the construction of facilities to gather, process, and transport their own gas, oil, or other commodities, across a provincial border. In such cases, the jurisdiction of the NEB typically will not extend upstream from the point of connection between the interprovincial pipeline and the upstream production facilities. The Canadian Hunter decision has expedited consideration of recent applications before the NEB by preventing the emergence of jurisdictional issues.

Although clarity in respect of federal environmental assessment requirements has not been addressed by the Canadian Hunter decision, it is anticipated that, in the majority of situations, NEB environmental scoping decisions will follow the constitutional jurisdiction of the physical facilities.

Copies of the Federal Court judgement in the Canadian Hunter case may be obtained from the NEB Library.

Michel L. Mantha
Secretary

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