Canadian Underwriter

Bill imposing $1 billion in absolute liability for pipeline spills tabled for third reading

May 1, 2015   by Canadian Underwriter

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The federal government tabled Thursday Bill C-46 – which proposes to impose absolute liability of up to $1 billion on pipeline operators in case of spills – for third reading in the House of Commons. Natural Resources Minister has tabled Bill C-46, the Pipeline Safety Act, for third reading. Major crude oil pipeline operators would require financial resources  such as insurance to cover absolute liability of $1 billion

Bill C-46, the Pipeline Safety Act, will, if passed into law, impose absolute liability for “unintended or uncontrolled releases,” of commodities such as oil and gas, from pipelines regulated by the National Energy Board.

“Companies will automatically be responsible for up to $1 billion in damages,” Natural Resources Minister Greg Rickford said at a press conference last year when he initially tabled the bill. “It doesn’t matter who or what causes the incident. The company is responsible for that $1 billion regardless. If a company is found negligent or at fault there will be no limit on liability.”

Major crude oil pipeline operators would require financial resources – such as insurance, bonds or guarantees – of up to $1 billion.

“There is widespread agreement that the Pipeline Safety Act is an important step in our efforts to maintain the most rigorous pipeline safety regime in the world,” said Kelly Block, Rickford’s parliamentary secretary, on Thursday in the House of Commons. “At the Standing Committee on Natural Resources, we heard from a variety of witnesses who support our legislation.”

The natural resources committee sent Bill C-46 to the House of Commons, with some minor amendments, on April 23.

It has yet to pass third reading in the House of Commons.

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In March, the Commons’ natural resources committee heard from Jeff Labonté, director general of the Energy Safety and Security Branch for Natural Resources Canada’s energy sector.

“Companies operating pipelines will be required under the new legislation to hold sufficient financial resources to cover any potential costs associated with an incident,” Labonté told the committee at the time. “Set in the Act is that it would be $1 billion for major oil pipelines and regulations, at lower levels for other classes of pipelines to be developed under regulation. Companies will also be required to hold a minimum level of accessible financial resources to ensure an immediate response. This is sometimes referred to as cash on hand or cash available for a response, should it be necessary.”

Bill C-46 proposes that in considering a pipeline operator’s financial capacity to meet the absolute liability requirement, the NEB “may consider, among other things, the company’s financial statements, letters of credit, guarantees, bonds or suretyships and insurance.”

During those hearings, Conservative MP Brad Trost asked Labonté to elaborate on pipeline operators’ options other than insurance.

“When the (National Energy) Board currently evaluates a project and a proposal for a pipeline and its operation, it will look at the financial viability of the company and its ability to construct, build, and operate the pipeline,” Labonté replied. “Part of that is their asset base, their balance sheet, what kind of insurance they have, what their credit rating is, what kinds of bonds they might have.”

Labonté added that Bill C-46 would give NEB “the ability to recognize different forms of financial security, because different companies will use different ways, and we don’t want to prescribe that they must have insurance and it’s the only thing that will be acceptable.”

Related: Federal bill increasing absolute liability to $1 billion for nuclear operators, offshore energy, passes Senate

Bill C-46 also proposes to give NEB the power to order a pipeline operator, after a spill, to reimburse “any federal, provincial or municipal government institution, any Aboriginal governing body or any person” for costs and expenses that NEB “considers reasonable that they incurred in taking any reasonable action or measure in relation to the release.”

That power would apply “even if the costs and expenses are more than the amount of the limit of liability” mandated by Bill C-46.

“If a company is unable to respond immediately to an incident, the National Energy Board will have authority to take over the job,” Rickford said last year after introducing the bill. “If that ever does happen, the National Energy Board will have the authority to recover any and all costs from industry.”

The NEB’s chief operating officer, Josée Touchette, told the Commons natural resources committee in March that Bill C-46 would give the board “enhanced enforcement powers to issue stop-work orders in the north, clarification of the board’s jurisdiction over abandoned pipelines, board power to assume control of an abandoned pipeline if the company is not complying with board orders and board powers to assume control of an incident where the governor in council determines that the company will not be able to pay or is not complying with board orders.”

She added at the time that NEB has “responsibility to provide regulatory oversight to about 73,000 kilometres of pipeline,” which she said “is nearly enough pipe to wrap around the earth two times.”

Canada’s pipeline industry has a “safety record of 99.9995% between 2002 and 2013,” suggested Jim Donihee, chief operating officer of the Canadian Energy Pipeline Association, before the committee. “At the same time we recognize that it is not sufficient. It’s not good enough. Our CEOs have publicly committed to zero incidents on pipelines, and we’re very actively working to get there.”

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Bill C-46, Donihee added, “certainly complements our industry’s strong belief in the polluter pays principle, excellence in emergency response, pipeline safety, and environmental protection. For that reason, and to reassure Canadians that our industry is fully dedicated to a safe and socially responsible energy pipeline transmission industry, CEPA supports the proposed regulation.”

For Canada’s construction trades, a pipeline “means linking thousands of high-paid, high-skilled jobs in, say, Fort McMurray, with thousands of high-paid, high-skilled jobs in Quebec City, if energy east goes through, or in Saint John,” said Robert Blakely, the Ottawa-based Canadian operating officer for the Building and Construction Trades Department of the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO). The Buil
ding Trades’ affiliates include the United Association, an Annpolis, Md.-based union whose members include pipefitters in Canada.

“We’re supportive of the polluter pays principle, and perhaps some of the discretionary things that are within the bill are appropriate in the circumstances,” Blakely told the natural resources committee in March. “Sometimes we need to rely on people like the National Energy Board to make reasonable and rationed decisions, and we need to give them some discretion to do that.”

Bill C-46 also proposes to make pipeline operators “responsible for their pipelines even after they’re abandoned, up to the point at which they’re removed from the ground,” Labonté told the natural resources committee in March. “Should a pipeline be abandoned and left in place, the company will be responsible for it in perpetuity until the pipeline is removed, and it must give provisions to the board to ensure there’s adequate and appropriate funding to accommodate that should the pipeline company cease to exist in the longer term.”