 |
 |
|
 |
September 17, 2009 - Volume 7, Number 9 | |
 |
 |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
The Electricity Industry In Canada In co-operation with Carswell, a Thomson Reuters company, Gowlings is pleased to announce that our book entitled The Electricity Industry In Canada is now available for purchase. The two-volume work, consisting of about 1,400 pages, is a comprehensive look at the electricity sector from coast-to-coast-to-coast. Topics covered include:
The provinces and territories are also comprehensively covered. These chapters are structured in a way to make cross referencing an easy task with each chapter containing discussions on:
For more information, or to purchase this book, please visit the following Thomson Reuters web site: WHAT ARE SENIOR ENERGY EXECUTIVES THINKING? Have you wanted to know what other senior energy executives are thinking about today’s hot issues in the energy sector in Canada and around the world? We have. That’s why Energy @ Gowlings has introduced a new feature, “What Are Senior Energy Executives Thinking?”. From opinions on the development of renewable generation to views on alternative energy technologies to the place of Alberta’s oil sands in the continental supply mix, Gowlings will ask the questions you’ve always wanted to. This issue’s web poll: A recent survey in the United States (of non-energy professionals) asked which strategy will most help the United States gain energy independence. Respondents replied: More efficient fuel vehicles and a reduction in vehicles 31%; Nuclear 20%; Offshore oil 18%; Solar 15%; Wind 14%; Coal 3%; and Hydro 0%. Where do you see the future of the Canadian energy sector in helping meet our energy needs:
DISCLAIMER: This poll is informal, not scientific. It only reflects the opinions of site visitors who have voluntarily participated. The results may not represent the opinions of the public as a whole. Gowlings is not responsible for the statistical accuracy of opinions here expressed. If you have have a question you'd like to pose, let us know. Your question could be featured in an upcoming edition of the newsletter. Send all your energy-related questions to energy@gowlingsnewsletters.com.
MOVING ANTI-CORRUPTION UP THE CORPORATE AGENDA IN CANADA
It has been ten years since Canada adopted the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, which bans bribery of foreign public officials in international business transactions. However, a progress report released in June by the international corruption watchdog agency Transparency International called Canada a laggard and identified it as one of 21 countries making little or no effort to enforce its anti-corruption commitment. Federal Minister of International Trade Stockwell Day defended Canada, saying that fewer convictions does not mean that Canada is not enforcing the Convention. However, the fact is that there has been only one conviction (R v. Watts, [2005] A.J. No. 568) under the Canadian Corruption of Foreign Public Officials Act, 1998 (CFPOA), the country’s main piece of legislation dealing with Canadians participating in corruption in other countries. One of the obstacles in Canada’s anti-corruption law is that it does not claim nationality jurisdiction. This leaves it unclear whether Canadian courts will assume jurisdiction over the bribery of foreign public officials where the offence is committed in whole or in part outside Canada. It requires that a real and substantial link be established between the offence and Canada. The longer arm of the law It appears, however, that the Minister of Justice intends to change that. Bill C-31, introduced on May 15, is an Act to amend the CFPOA as well as the Criminal Code and the Identification of Criminals Act. Among other things, Bill C-31 expands the jurisdiction of Canadian courts to include bribery offences committed by Canadians outside Canada. Section 38 of the Bill says that any Canadian citizen, permanent resident or Canadian-incorporated organization who commits an act or omission outside Canada that would be considered an offence within Canada is deemed to have committed that act or omission in Canada. If this Bill passes it will strengthen Canada’s anti-corruption law and make it easier to enforce the CFPOA against Canadian organizations and individuals carrying on illegal activities outside Canada by claiming nationality jurisdiction. It would eliminate the need for Canadian law enforcement agencies to demonstrate a link between the offence and Canada since the link would be effectively established by Canadian citizenship, residency or incorporation. Bill C-31 seems to be at least partly in response to increasing pressure being felt by Canada to take stronger action on international corruption. As well as from the OECD, this pressure comes from the United States. The already-long arm of US law continues to grow as the US Department of Justice seeks to enforce the US Foreign Corrupt Practices Act, 1977 against organizations and individuals with a relatively limited nexus to the US. The US Department of Justice is also actively encouraging enforcement agencies in other countries to investigate and take action against organizations and individuals suspected of corruption in those countries. Penalties can include fines, disgorgement of profits and other sanctions, including jail time for directors and officers of the offending organizations. Bill-31, once law, and the establishment in 2008 of the RCMP’s international anti-corruption crime unit, should push anti-corruption higher on the agendas of all Canadian organizations. Building a structure to protect organizations What can organizations do to protect themselves from the chances of being accused of corrupt practices in their international dealings? An organization’s best defence is the personal integrity and ethics of its employees. The expectations the organization has of its employees must be outlined in a Code of Ethics. This Code should set out clear expectations regarding how the organization’s employees must treat third parties as well as each other. It should also create an expectation that employees will bring their concerns forward. Many organizations that have a Code of Ethics do not take the steps necessary to make it a living part of the way they do business, nor do they provide necessary supports for the Code. The Code cannot stand on its own. One of the essential supports is a whistleblower venue – a trusted place or channel where employees can report their concerns. They may be reluctant to do so without the second essential support – a clearly stated and implemented policy protecting whistleblowers from retaliation. The Code of Ethics, the whistleblower venue and the anti-retaliation policy will be effective only if they are built on a foundation of clear and transparent processes and internal controls. Effective processes and internal controls must be understood by, and implemented in, the front lines of an organization. These elements, taken together, are a good start towards a program that can protect the organization from corruption and the harm that can come from being found to be involved in corruption. For more information on how we can help your organization protect itself from corruption, visit Gowlings International Business Ethics & Anti-Corruption page at http://www.gowlings.com/services/service.asp?intServiceId=87
ONTARIO'S FEED-IN TARIFF PROGRAM
The feed-in tariff (FIT) program is intended to encourage and promote greater use of renewable energy sources including wind, waterpower, renewable biomass, bio-gas, landfill gas and solar for electricity generating projects. The Ontario Power Authority (OPA) has released draft FIT program rules as well as a draft FIT contract for stakeholder consultation as of July, 2009. Upon the proclamation of the Green Energy and Green Economy Act, 2009, the OPA will officially launch the FIT program. It is designed for generating facilities with a maximum capacity of 10 MW for solar PV projects, 50 MW for waterpower projects and unlimited capacity for projects using other renewable fuels. Under the FIT program, the OPA will have no responsibility to assess the viability of a project. To be eligible to participate in the FIT program, a proposed generating facility must (i) be a renewable generating facility as discussed above, (ii) be located in the Province of Ontario, (iii) meet the contract capacity requirements discussed above, (iv) not be an existing generating facility (although some limited exceptions apply for upgrades and expansions), (v) connect to a distribution system, (vi) have separate metering suitable for data collection and settlement purposes, (vii) not have had a power purchase agreement in respect of the facility, and (viii) comply with any provincial content requirements set by the Ministry of Energy and Infrastructure. It is expected that the OPA will begin accepting applications for the FIT program in the fall of 2009. The deadline for consideration in the first transmission availability test will be posted on the OPA’s website – www.powerauthority.on.ca in due course. Highlights of the FIT program include:
There are no limitations as to ownership of a project. The FIT contract specifically provides for a non-resident Supplier. If a Supplier is a non-resident, as is defined in the Income Tax Act (Canada), the OPA may reduce the payments owed to the Supplier by the amount of any such withholding taxes or other taxes incurred by the OPA. The FIT program is intended to be a simpler method for Ontario to procure and develop electricity generation. It is critical to the Green Energy Act’s objectives of increasing conservation and creating a culture of conservation in Ontario, creating 50,000 “green” jobs in three years and developing a smart grid. The FIT program will ensure standard rules, contracts and pricing for electricity, differentiated only by the energy source and capacity of the facility. The OPA released the draft microFIT rules and contract on August 14, 2009. The microFIT rules are designed to encourage and support small renewable energy projects, such as a home or small business installation, that are 10 kW or less in generating capacity.
IS IT TIME TO STOP ALL THIS INTERMINGLING?
The Alberta Court of Appeal recently ruled on a case1 dealing with the priority of claims to the bank accounts of a petroleum operator which had gone into receivership, where the operatorship was governed by the 1990 CAPL Operating Procedure. The operator had failed to pay to the non-operators revenues of approximately $300,000, having only $58,000 left in the commingled account. The Operating Procedure imposes a trust on the production revenues but also expressly allows intermingling of these funds with the operator's general funds. The money received on account of non-operators is specifically to be applied only to the intended use.2 When the receiver sold the operator's assets, there were competing claims from the non-operators and a secured creditor. The non-operators argued that there was a constructive trust created by the Operating Procedure that attached to the sale proceeds, whereas the secured creditor argued that this was limited to the amount of cash on deposit at the time of receivership. The trial judge agreed with the non-operators based on a blatant breach of trust by the operator when it used the revenues for unauthorized purposes. The Court of Appeal confirmed that it is clear that the funds left in the bank account are protected by the trust, and that the operator was in clear breach of its fiduciary duty to not expend the trust funds in unauthorized ways. The difficulty that the Court of Appeal majority could not reconcile was whether the non-operators could trace unremitted trust funds through to the sale proceeds via a constructive trust. Given the fact that the funds were commingled with general moneys, the Court of Appeal was not convinced that the non-operators had a right which was greater than that of a perfected security interest holder. To succeed, the non-operators would have to have been able to trace the trust funds to specific assets and that was not possible in this case. The secured creditor also deserved protection and the Court of Appeal majority decided that the trust only attached to the money left in the account. The majority was critical of the common practice in the oil industry of allowing commingling of funds and decided that, because the non-operators had permitted the commingling, they should assume the burden created. The dissenting opinion in the judgment presents a strong argument that the true purpose of a constructive trust has been ignored by the majority and that recognition of the trust in this case would serve to protect the integrity of this trust relationship which is so crucial to the industry. The argument stated that the secured creditor was a sophisticated party which was very experienced in the industry’s risks, and it had unjustly benefited from the operator's wrongdoing. The dissenting opinion fully supported the trial judge's findings. The updated 2007 version of the CAPL Operating Procedure uses the same language as the subject 1990 version permitting commingling, although there are now additional provisions allowing the non-operators somewhat better remedies to terminate the operator’s commingling right if the operator is in distress. The annotations explain some of the prior caselaw and reflect the industry view that commingling should continue to be allowed since the cost savings to industry of allowing this practice are not overshadowed by the risk posed by the few bad industry operators. Although changing the common practice of allowing the commingling of trust funds will likely not happen any time soon, this judgment provides a clear explanation of the risks involved with intermingling general funds and trust funds. It also is a very clear indication that the issue of how far a non-operator can go to recover moneys owed and never paid remains a matter of intense debate and principled argument. Non-operators may be able to protect themselves by insisting on segregation of funds but the practicability of doing so is quite suspect in an industry which has developed its practices around a commingled account structure. Given the split decision and the importance of the issues being examined, we may not have seen the last of this issue, and we will watch for, and report on, any further developments. Vigilance and quick action in the face of non-payment remain the non-operators' best defence! 1. Brookfield Bridge Lending Fund Inc. v. Karl Oil and Gas Ltd., 2009 ABCA 99.
SMART SUB-METERING IN RESIDENTIAL AND COMMREICAL COMPLEXES
On August 13, 2009, the Ontario Energy Board issued a Decision and Order (the “Decision”) authorizing Exempt Distributors such as landlords to install smart sub-metering systems for individual units and to conduct other discretionary metering activities. Currently, residential and commercial complexes are typically metered and billed through a bulk meter which results in the lack of differentiation between users. By providing the smart sub-metering systems, the allocation of electricity usage by individual tenants will be on a unit-by-unit basis. Although the Decision grants the landlords the authority, in order for landlords to use such smart sub-metering systems for billing purposes, the express written consent of the tenants must first be obtained. This Decision provides landlords with instructions on the specific conditions necessary for using such systems to bull tenants. For commercial complexes, the tenant’s consent must be obtained in writing and the meters can only be installed by licensed smart sub-metering providers. For residential complexes, the meters may only be installed by licensed smart sub-metering providers. However, in this instance, not only must the tenant’s written consent be obtained but it must also be an informed and voluntary consent. Further, an energy audit must be conducted by an independent third party; the results of the audit must be made available to the tenant when consent is sought. Additional details such as a corresponding rent reduction must also be provided to the tenant. The Decision clarifies that smart sub-metering of residential and commercial complexes is not authorized if the smart sub-metering system was installed prior to the Decision and on or after November 5, 2005. However, it does recognize existing written consent in the case of commercial complexes that were given at the time the lease was signed. For more information on this Decision, please refer to:
CANADA'S OIL SANDS: ENERGY SECURITY VS. CLIMATE CHANGE-CAN WE HAVE BOTH OR MUST WE CHOOSE?
Background The Council on Foreign Relations is an independent, highly respected think tank and New York-based publisher dedicated to providing information regarding the world and the foreign policy choices facing the United States and other countries. In its Special Report The Canadian Oil Sands Energy Security vs. Climate Change, by Michael A. Levi, the CFR explores the energy security and climate change implications of expanded oil sands production. This report provides a well-balanced view of the role the oil sands play in the sometimes conflicting priorities concerning energy security and climate change. The author acknowledges that, “energy security and climate change do not always align: many important decisions in areas including unconventional oil, biofuels, natural gas, coal and nuclear power will involve complex trade-offs and force policymakers to carefully navigate the two goals.” The purpose of the Report is to advise American policymakers regarding the American approach to Alberta’s oil sands. This article presents an intellectual and fact-based argument that the oil sands exploitation is neither essential for energy security nor catastrophic in affecting climate change. Since 2004 Canada has been the largest source of U.S. oil imports. Future oil sands development will depend on factors shaped by physical and political conditions including international oil prices and worldwide availability of oil. Based on the U.S. Energy Information Administration’s projections, oil sands production may well triple by 2030, to 4.3 million barrels/day. This is remarkably similar to the Canadian Energy Research Institute’s projection that production will rise to about 4.2 million barrels/day by 2030. Impacts of the Oil Sands on Energy Security: The report makes it clear that, “[u]nderstanding the actual security benefits of increased oil sands production is essential to developing policy that balances those [benefits] with the related climate damages.” There are many factors that come into play when making the determination that using Canadian oil sands would increase energy security, including the following:
However, oil is traded on a global market and therefore the impact of the oil sands on the security of energy supply may not be as great as some would think. The report suggests that exploiting the oil sands will not fundamentally change global oil supply. “Perhaps the greatest impact of expanded oil sands exploitation would be a diversion of revenues away from adversarial governments—an important outcome—though this benefit would exist regardless of whether the United States was the ultimate consumer.” Impacts of the Oil Sands on Climate Change: Although greenhouse gas emissions from the oil sands (particularly those associated with upgrading) are greater than those associated with conventional oil, technological improvements have decreased and are continuing to decrease average oil sands productions emissions. The roughly 1,200,000 barrels/day of current oil sands production is responsible for a “premium” of about 40 million tons of CO2 emissions annually compared to conventional oil. This represents about 5% of Canadian emissions, 0.5% of U.S. emissions from energy use and less than 0.1% of global emissions. If oil sands production increases as expected and average oil sands productions emissions are not decreased, the oil sands contribution to CO2 emissions will roughly triple by 2030, making oil sands a huge relative contributor to Canadian emissions, but still a relatively marginal one in the U.S. and global contexts. At this time, emissions from the oil sands represent a small portion of global emissions and, with a bias favouring technological improvements, one might reasonably expect a lowering of greenhouse gas emissions associated with oil sands. Principles for balancing the goals of energy security and diminished climate change; Joint CAN-AM Action: The report encourages policymakers in the U.S. and Canada to balance the goals of greater energy security and decreased climate change by incentivizing decreased emissions without discouraging production. It is acknowledged that the oil sands do not represent the complete picture with respect to these goals; however, their consideration as part of broader strategies is encouraged. There is an expectation that Canadian and Albertan policy will continue to support oil sands production while simultaneously imposing tougher emissions regulation. While it is not surprising that domestic Canadian policy currently plays the largest role in oil sands development, the impact of U.S. policy is expected to grow because the U.S. is the natural market for oil sands products. The United States and Canada are encouraged to work together to meet the twin goals of minimizing climate change and increasing energy security. Reasonable and prudent carbon pricing is anticipated to be the central tool for balancing energy security and climate change concerns. The Report notes:
As continental neighbours who share many of the same goals, there are compelling reasons for harmonizing the U.S. and Canadian carbon pricing schemes. The simplest way of accomplishing this aim would be to allow trading between the two cap-and-trade systems which would lead to prices on greenhouse gas emissions being the same on both sides of the border. Going Forward Michael Levi, the Report’s author, proposes that a smart strategy, ensuring that energy security and climate change were balanced in U.S. policies as they would affect the Canadian oil sands, would combine four elements:
The Report would suggest that oil sands have a bright future. The United States is being advised to take a well-balanced and collaborative approach toward the impact the oil sands will have on energy security and climate change. Extracting oil sands will increase energy security and the corresponding impact on climate change is manageable. Linking cap-and-trade systems across the United States-Canada border, carefully regulating a low-carbon fuel standard, focusing American technology support on higher-payoff areas and resisting the misuse of environmental regulations to constrain oil sands production are all elements of an intelligent strategy that will ensure a competitive balance between American/continental concerns regarding energy security and climate change.
Up Close With... Danielle Waldman In this instalment of Up Close With… we feature Danielle Waldman from Gowlings Toronto office practising in the area of business law with a specialization in technology, energy and infrastructure.
Representative Work
Danielle’s technology practice includes preparing and negotiating software licence and maintenance and support agreements, website development agreements and other Internet related agreements for various clients, including those in the energy and infrastructure sectors. She also advises clients with respect to privacy law matters, online consumer protection issues and financings of both early and mid-stage technology companies. Representative Work
Danielle has authored and co-authored publications for the American Bar Association, the Consumer Finance Quarterly Law Report, the Ontario Bar Association - Entertainment, Media and Communications Newsletter, various Gowlings’ newsletters and Gowlings’ The Electricity Industry in Canada. Contact Information |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
