Pipeline Summit Brings Pledges But No Guarantees For Trans Mountain Expansion

Prime Minister Justin Trudeau, Alberta Premier Rachel Notley, and BC Premier John Horgan emerged from a “pipeline summit” in Ottawa April 15 smiling and cordial, but their inability to reach agreement on Kinder Morgan’s Trans Mountain Expansion project guarantees more legal and political clashes in the not too distant future.

Trudeau’s decision to have the Canadian government introduce legislative changes to strengthen federal authority over pipeline regulation was criticized by Horgan and now has drawn the ire of Quebec, long a champion of provincial rights. Canada and Alberta also pledged to provide financial backstopping for the pipeline in order to remove the uncertainty that caused Texas-based Kinder Morgan to suspend “non-essential spending” just over a week ago.

The meeting was called by the Prime Minister, who cut short a trip to Peru to attend, because of the escalating feud between Alberta and British Columbia. The core of the disagreement is Horgan’s desire to restrict or stop shipments of diluted bitumen through his province while a science advisory committee studies and reports on the state of marine spill response, which is federal jurisdiction. So, too, are interprovincial pipelines like the existing 300,000 barrels per day (bbl/d) Trans Mountain pipeline, which would be twinned and capacity expanded to 890,000 bbl/d. Trudeau has promised the new pipeline will be completed and he has vowed to protect his government’s jurisdiction.

“The Trans Mountain pipeline expansion is a vital strategic interest to Canada. It will be built,” he told reporters after the meeting. “[E]ven as we continue to work hard with Premiers Notley and Horgan to find solutions, we must recognize that they remain at an impasse, which only the Government of Canada has the capacity and authority to resolve.”

He added that he has instructed Finance Minister Bill Morneau “to initiate formal financial discussions with Kinder Morgan” with the goal of removing the “uncertainty overhanging the Trans Mountain pipeline expansion project.”

The Alberta Premier, who has run three consecutive years of budget deficits in the $10 billion range annually, also pledged to put the public treasury behind the project.

“Today in the meeting, one of the things that we discussed was that the federal government along with the government of Alberta has commenced discussions with Kinder Morgan to establish a financial relationship that will eliminate investor risk,” Notley said. “I am quite confident, that should these discussions end successfully that the pipeline will be built. And that is good because the project is in the national interest.”

But the biggest news may turn out to be that the Canadian government plans to introduce amendments to existing legislation that will protect federal authority over pipelines and other projects that cross provincial boundaries, which is already set out in Sect. 92.10(a) of the Canadian Constitution.

“I have also informed Premiers Notley and Horgan today that we are actively pursuing legislative options that will assert and reinforce the Government of Canada’s jurisdiction in this matter, which we know we clearly have,” the Prime Minister said.

The most likely candidate for revision is the National Energy Board Act, passed in 1959, that establishes the federal energy regulator as an arms-length agency. Trudeau could enable the Governor in Council (essentially the federal cabinet) to provide more direct instructions to the board, which is also a superior court and can rule on questions of constitutionality.

Horgan refused to comment on Trudeau’s plan, but he did repeat his government’s position that the Province and the Canadian government share jurisdiction over environmental protection.

“Despite all of the commonality between the three of us, we continue to disagree on the question of moving diluted bitumen from Alberta to the port of Vancouver,” Horgan told reporters after the meeting, as reported by CBC. “We had a discussion about options the federal government laid out their plan over the next number of days. I’ll leave that to the prime minister and the minister of finance to tell you about.”

The left-leaning BC NDP government’s strategy was illuminated this week when Environment Minister George Heyman explained in a legislature committee meeting that lawyers had advised that BC had no legal authority to stop Trans Mountain Expansion because it could not override federal approval. But BC does believe it has the authority to regulate on environmental matters. “[T]he proposed regulations would apply to transport of heavy oil by pipeline or by rail. In addition, they are focused on measures necessary to prevent a spill, to respond appropriately and quickly to a spill and to recover in the tragic and unfortunate event that a spill takes place,” Heyman said. “There is no reference in them whatsoever to stopping the project, simply to making it safer from a community, economic and environmental perspective.”

The danger, from Trudeau and Notley’s perspective, is that the BC regulations will be used to further frustrate Kinder Morgan, which has already given notice that if the inter-governmental wrangling isn’t resolved by May 31, the company will likely cancel the $7.4 billion project. Nevertheless, Horgan indicated BC will continue with its plan to ask the courts to clarify the boundaries of its regulatory authority. That strategy was endorsed by Quebec, whose minister responsible for Canadian relations Jean-Marc Fournier, wrote in an open letter that the “recent assertions of federal representatives regarding the Trans Mountain pipeline, which refer to an exclusive application of federal rules, are detrimental to a proper resolution of this issue and raise concerns for the future.”

As if the political and legal landscape isn’t already complicated, next month the Federal Court of Appeal is expected to rule on a judicial review of Trudeau’s 2016 approval. Because the focus of the review concerns indigenous consultations required by the Constitution, the jurisdiction is not as certain, nor is the outcome.

Kinder Morgan hasn’t weighed in on the announcements and some industry watchers aren’t sure the company will want two new partners.

Whether it will have the certainty it needs to re-start Trans Mountain Expansion will emerge over the next month or so as the Canadian government introduces legislative changes and pursues investment discussions, along with Alberta. At this point, all the company has gained is more controversy as the country fiercely debates the merits of the pipeline project.