Regulatory Shakedown in the Energy Sector
May 15th, 2017
The following article, reprinted with permission, was originally published in the May / June, 2017 edition of Energy Processing Canada magazine.
“Hi, I’m Guido Scalese, and this is my colleague Tony ‘Ducks’.” It begins. “You’ve got a lovely business here, must mean a lot to you. Be a shame if anything were to happen to it.” Shakedowns are a naked grab at money or power, and all at your expense, but they’re usually packaged as a product of some kind.
“We sell insurance,” says Guido, “a sort or protection against predictable damage.” Very predictable, on consideration, and its damage that could destroy your business. But, he says, protection is affordable; “It’s a small charge, taken off your revenues –think of it as a vig, or a royalty.”
The bottom line; “You pay us what we want, and we let you keep your business. Well, some of it. That’s the deal.” And that’s what’s arrived in Canada’s energy sector, and all because of a Court ruling.
On March 8, 2016, the Federal Court Ruled that Canadian law is privately owned. Specifically, any text submitted to government by non-government parties for inclusion within legislation is now the private intellectual property of whomever drafted that text. So, whoever wrote it owns it, even if it’s legislation.
From the Ruling; “it would contrary to a purposive construction of the Copyright Act to strip the [owner] of its rights in the [legislation] simply because certain provinces have incorporated it into law.” Therefore, with all such legislation, “copyright does not belong to the Crown.” Further, the Ruling affirmed that all the rights of private ownership accrue to the owners of legislation.
The owners then, can restrict public access to their laws, can charge royalties for each reading, or quoting or referencing of them, and they also control government enforcement of their laws.
Anyone who has successfully lobbied government for change in law now privately owns those laws that feature their changes.
Today there are more than 5,700 persons, companies, unions, etc. registered the with Federal Government to contribute to legislation. Each of these entities now enjoys ownership and control of the portions of law that they contribute to. That is, they can charge for access to legislation, charge for usage, charge for compliance and inspection, they can even prevent government use of their property for purposes of enforcement, certification, and regulatory processes.
Given the numbers, the result is a chaotic and byzantine patchwork of conflicting private property in what was formerly considered public law.
The biggest offender is the Canadian Standards Association (CSA). At law, the CSA is an Agency of the Federal Government, mandated with drafting engineering legislation, but it has been allowed to function as a private company for over 20 years. The CSA enjoys the power of government without the accountabilities, and the freedom of a corporation without the responsibilities. They operate in many sectors, from energy, to transport, to health care. Critically, some time ago the Government granted the CSA the power to amend legislation without Parliamentary review.
That’s a worry, because it was CSA that filed with the Federal Court to strike public law in the first place. They wanted this Ruling, badly. For CSA, there’s a lot of money in it.
The CSA drafts and amends more than 2,000 laws and 6,000 regulations, mostly technical and engineering in nature and therefore applicable throughout the energy sector. All of CSA’s laws are now owned by them, the government mandates that you comply with these laws but you can’t read them or comply with them without paying money to the owner. And that brings us back to Guido.
“Nice energy company you’ve got, and a winner of a project too, you’ve invested a lot of money here.” And so, it begins. “The regulations you need to comply with are our property now, we own them, but we want to help you succeed, we’re in your corner. We’ll grant you access to our laws, we’ll allow government regulatory, we’ll even certify your compliance, and all for a small charge taken off your revenues.” Of course, a “small charge” is relative. But, you’re assured, you’ll get used to tighter margins and bigger charges, you’ll “think of it as a vig, or a royalty.”
Does that seem absurd? It should, but it’s also happening. The reality of private law is already here and it’s gaining ground.
The CSA is already charging citizens to access electrical laws. Trade schools teaching electrical compliance are likewise charged because the subject matter is now CSA’s property. The CSA charges royalties to contractors who post jobsite safety information because CSA drafted some of those laws. Never mind that contractors are required to post that info, in complying with law the contractor is now obligated to pay whatever CSA wishes to charge. It’s a blank cheque. And it gets worse.
It’s not merely the sale of access to legislation or the right to comply with it, but the drafting of legislation is for sale too. In 2014, CSA was outed for selling votes at set prices on legislative committees, selling seats at legislative committee to the highest bidder, and selling “custom” legislation at floating prices of a few hundred thousand dollars each. The CSA has been monetizing the legislative process.
Given the profit potential of this shakedown environment, the CSA has started positioning itself as a new regulatory layer in the energy sector. They’ve opened an office in Calgary and are specifically targeting oil sands and pipeline entities. As their CEO admitted in 2013, “we have been trying to get in there and say, ‘we can help you develop standards,’ [and] we are starting to make some progress” at getting established in the sector.
The CSA has a long history of entering new market sectors promising to help coordinate environmental or safety standards of a purely voluntary nature. Once established however, the standards they develop are referenced as “regulations,” parties voluntarily not participating are deemed materially non-compliant. These regulations are then incorporated by CSA into legislation and are enacted as laws. Thus, voluntary standards today become laws tomorrow, industry agreeing to the one are not consulted on transition to the other.
The issue isn’t so much an increase in project cost as a financial veto over project development. That is, having legislative authority over the sector, combined with private ownership of regulations, means that CSA or their committee members have the power to force royalty payments at extortionate rates in exchange for regulatory compliance or, worse, to deny regulatory approval entirely to the preferences of their members.
Those CSA members are assembled into CSA committees solely at CSA’s discretion on what they call a “balanced matrix,” comprised of industry, interest groups, and environmentalists. The energy sector does not control the composition on the committees and does not have a majority of votes thereon.
In practical terms then, the energy sector is facing a new layer of regulatory authority, this time run by committees comprised in the main of opponents of the energy sector.
That’s dangerous, given that under the Court ruling energy companies now have no right to read or otherwise access the regulations that apply to them, no right to comply with regulations without payment or penalty, and no right to government inspection, permitting, or approval without CSA permission. And all that comes at CSA’s pleasure, and at whatever cost they wish to charge.
The practical experience of private law looks like this:
• Project A needs regulatory certification but the environmental groups on CSA committee combine with CSA’s own members to withhold approval. The owner of Project A either pays a shakedown of a few tens of millions to CSA and their members or the project is shelved after major investments and time.
• Energy company #1 has been working on Project B. Energy company #2 wants to impede the actions of energy company #1. In this, energy company #2 pays money to CSA to enhance their vote on committee to halt certification of Project B.
• Project C is unpopular with the environmental movement. They decide to halt the project entirely. And they have the votes on committee to do so.
So, what are governments doing? Well, nothing. A rollback of CSA’s regulatory activities would expose the Federal Government to legal liabilities, would be politically expensive and, given the vested interests at CSA, it could be a messy undertaking.
The Prime Minister’s Office has taken the position that CSA’s ongoing expansion of regulatory power in the context of the Federal Court Ruling, and the resulting costs to industry, is a lesser political expense than cleaning it up and returning CSA to its legal mandate.
The last thing our struggling sector needs is another shakedown artist, this time empowered through private ownership of legislation to extort tens of millions per company, per project, and per year, their conduct without oversight and our options without recourse in Court or in Parliament.
The first victims have already felt it, the rest of us are scheduled for shakedown. For the energy sector, it’s time to get ready for Guido.
More info at http://www.restorecsa.com.
These are a small sample of laws, and regulations within laws, that are now privately owned. This list is not comprehensive, it samples only CSA’s private laws, and only those CSA laws applicable to the energy sector.
Canadian Electrical Code Part 1
Canadian Electrical Code Part 3
Propane Handling and Storage Code
Canada Oil & Gas Operations Act: [major sections]
Steel Structures, Offshore Structures
Oil and Gas Occupational Safety and Health Regulations [major sections]
Guide for Selecting and Implementing the Can3-Z299-85 Quality Program Standards
Cargo, Fumigation and Tackle Regulations [major sections]
Quality Assurance Program - Category 1
Quality Control Program - Category 2
Quality Verification Program - Category 3
Inspection Program - Category 4
Canada Occupational Health and Safety Regulations [major sections]
Test Methods for Electrical Wires and Cables
Industrial Protective Headwear
Selection, Use, and Care of Respirators
Compressed Breathing Air and Systems
Boiler, Pressure Vessel, and Pressure Piping Code
Gas Pipeline Systems
Foundations, Offshore Structures
Structures, Offshore Structures
Saskatchewan Uranium Mines and Mills Exclusion Regulations [major sections]
Saskatchewan Electrical Inspection Act [major sections]
Saskatchewan Use of Electricity in Mines Regulations
Safety Code for Elevators
Safety Code for Manlifts
Safety Code for Elevating Devices for the Handicapped
Wood Utility Poles and Reinforcing Studs
Concrete Poles regulations
Guide to Requirements for Relocatable Industrial Accommodation
Industrial Eye and Face Protectors
Saskatchewan Occupational Health and Safety Regulations [major sections]
Fall Arresting Safety Belts and Lanyards for the Construction and Mining Industries
Fall Arresting Devices, Personnel Lowering Devices and Life Lines
Lineman’s Body Belt and Lineman’s Safety Strap
Wire Crossings and Proximities Regulations
Height of Wires of Telegraph and Telephone Lines Regulations
Guidelines for the Safe Use of Ultrasound Part II - Industrial and Commercial Applications, Safety Code
Portable Electric Tools
Ground Fault Circuit Interrupters
Liquefied Petroleum Gases Bulk Storage Regulations
Flammable Liquids Bulk Storage Regulations
Chlorine Tank Car Unloading Facilities Regulations
Explosive Actuated Fastening Tools
Chain Saws regulations
Code for the Guarding of Punch Presses at Point of Operation
Rollover Protective Structures for Agricultural, Construction, Earthmoving, Forestry, Industrial and Mining Machines
Antennas, Towers, and Antenna-Supporting Structures
Guideline for Managing Air Quality in Office Buildings
Procedures for the Measurement of Occupational Noise Exposure
Overhead Systems and Underground Systems
Safety Requirements for the Use, Care and Protection of Abrasive Wheels
Safety Code for Mobile Cranes
Anhydrous Ammonia Bulk Storage Regulations
Ammonium Nitrate Storage Facilities Regulations
Motor Vehicle Safety Regulations [major sections]
Canada Oil and Gas Drilling and Production Regulations
Supplement 1-1977 to CSA Standard Z150-1974 Safety Code for Mobile Cranes
Occupational Safety Code for Diving Operations
Ferry Boarding Facilities
Saskatchewan Uranium Mines and Mills Exclusion Regulations - The Mines Regulations
Electromedical Equipment C22.2 No.125
Use of Electricity in Mines
Installation and Ventilation of Ethylene Oxide Sterilizers in Health Care Facilities
Ethylene Oxide Sterilizers for Hospitals
Installation Code for Lightning Protection Systems
Braking Performance - Rubber Tired, Self Propelled Underground Mining Machines
Fire Performance and Antistatic Requirements for Conveyor Belting
Non-Rail Bound Diesel Powered Machines for Use in Non-Gassy Underground Mines
Ref: Guidelines for the Safe Use of Ultrasound Part II - Industrial and Commercial Applications, Safety Code
Safe Working Practices Regulations
Consumer Chemicals and Containers Regulations 2001
Regulations Specifying Investigative Bodies
Mechanical Refrigeration Code
Natural Gas for Vehicles Installation Code
High Pressure Cylinders for the Onboard Storage of Natural Gas as a Fuel for Automotive Vehicles
Plumbing Requirements for Mobile Housing [RTM units]
Electrical Requirements for Mobile Homes [RTM units]
Gas Equipped Recreational Vehicles and Mobile Housing [RTM units]
Portable Containers for Gasoline and Other Petroleum Fuels
Mode Code for the Protection of Personal Information
High Voltage Insect Killers
Safety of Corded Window Covering Products
Canadian Highway Bridge Design Code
Hand Held Electrically Heated Tools
Mineral Fibre Thermal Building Insulation
Standard for: Thermal Insulation, Cellulose Fiber, Loose Fill
Risk Management: Guideline for Decision Makers
Security Management for Petroleum and Natural gas Industry Systems
Liquefied Natural Gas Production Storage and Handling
Hydrocarbons in Underground Formations
Body Belts and Saddles for Work Positioning and Travel Restraint
Fall Arresters, Vertical Lifelines and Rails
Self Retracting Devices for Personal Fall Arrest Systems
Descent Control Devices
Full Body Harnesses
Pest Control Products Regulations
International Bridges and Tunnels Regulations
Hazardous Products (Cellulose Insulation) Regulations
National Energy Board Pipeline Crossing Regulations Part 1 [major sections]
Energy Absorbers and Lanyards
Connecting Components for Personal Fall Arrest Systems
Flexible Horizontal Lifeline Systems
Design of Active Fall Protection Systems
Control of Hazardous Energy, Lockout and Other Methods
Energy Efficiency of Oil Fired Storage Tank Water Heaters
Energy Utilization Efficiencies of Oil Fired Furnaces and Boilers
General Requirements for Luminaries
Marine Machinery Regulations
Customs Duties Accelerated Reduction Order No. 1
Nova Scotia Offshore Petroleum Installations Regulations
Newfoundland Offshore Petroleum Installation Regulations
Performance of Electric Storage Tank Water Heaters for Household Service
Performance of Electric Storage Tank Water Heaters for Domestic Hot Water Service
Performance Options for Electric Storage Tank Water Heaters
Capacity Measurement and Energy Consumption Test Methods for Refrigerators, Combination Refrigerator-Freezers, and Freezers
Performance Standard for Room Air Conditioners
Test Method for Calculating the Energy Efficiency of Single-Voltage External AC-DC and AC-AC Power Supplies
Efficiency Test Methods for Three-Phase Induction Motors
Test Methods, Marking Requirements and Energy Efficiency Levels for Three-Phase Induction Motors
Energy Efficiency Test Methods for Three-Phase Induction Motors
Performance of Ground and Water Source Heat Pumps
Canadian Aviation Regulations [major sections]
National Energy Board Onshore Pipeline Regulations [major sections]
Aviation Occupational Health and Safety Regulations
Energy Efficiency Regulations
Power Line Crossing Regulations
Maritime Occupational Health and Safety Regulations
Performance of Ground Source Heat Pumps
Fluorescent Lamp Ballast Efficiency Measurements
Performance Standard for Internal Water-Loop Heat Pumps
Performance Standard for Split-System and Single-Package Central Air Conditioners and Heat Pumps
Performance Standard for Rating Packaged Water Chillers
Standard for Packaged Terminal Air-Conditioners and Heat Pumps
Performance Standard for Rating Large Air Conditioners and Heat Pumps
Performance of Dehumidifiers
Minimum Efficiency Values for Dry-Type Transformers
Performance of Internally Lighted Exit Signs
Performance of Self-Ballasted Compact Fluorescent Lamps and Ballasted Adapters
Performance of Incandescent Reflector Lamps
Household Electrical Appliances - Measurement of Standby Power
Testing Method for Measuring Consumption and Determining Efficiencies of Gas-Fired Storage Water Heaters
Testing Method for Measuring Efficiency and Energy Consumption of Gas Fired Unit Heaters
Swimming Pool Luminaries, Submersible Luminaries and Accessories
Medical Devices - Quality Management Systems - Requirements for Regulatory Purposes