Presentation to the Senate Committee on Energy, the Environment and Natural Resources

February 28, 2013

Good morning Honourable Senators. It is my pleasure to be talking to you from Calgary this morning by video conference. Our National office is situated in Regina, Saskatchewan, but I am in Calgary on personal business right now.

The Canadian Association of Energy and Pipeline Landowner Associations (“CAEPLA”, formerly “CAPLA”), is an association made up of regional member landowner groups from New Brunswick, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia and associate members from across Canada, coast to coast.

CAEPLA’s objective is to assist Canadian pipeline landowners to address more effectively the impacts of energy pipeline construction and operations which affect landowner interests, including soil preservation, environmental liability, land use restrictions, safety, repair and maintenance issues, abandonment and compensation. CAEPLA is a catalyst for the organization of pipeline landowner associations by providing organizational advice, advocacy and negotiation experience and services. It is also CAEPLA’s intention to address landowner concerns with respect to present pipeline regulation in Canada with appropriate government and regulatory authorities.

I would like to open with a couple of quotes, food for thought that might help contextualize the thoughts I am about to share with you.

The famous poet and playwright George Bernard Shaw said, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

And Albert Einstein said, “You can’t solve problems with the same level of consciousness that created them.”

Both sentiments are I believe very applicable to the issue we are addressing here this morning.

CAEPLA is a pro-development association, we support development that is responsible, sustainable, and respects the stewardship responsibilities of landowners to protect land and water for future generations. To date, our mandate has not been to oppose energy or pipeline projects. But if the industry and regulators continue to disrespect our property rights and stewardship responsibilities that will certainly change.

Landowners are the most interested party when it comes to safety, yet the system prevents us from insisting on iron clad business contracts that include oversight and the discipline of insurance.

CAEPLA has provided assistance to many landowner associations in negotiating pipeline agreements across Canada. Much of our time right now is spent on pipelines and power corridor projects in the West. We continue to attempt to get iron clad business contracts, but regulators and their legislation do nothing but get in the way and protect energy companies from the free market and free market oversight.

I have provided you ahead of time with a few documents that will help you to understand the perspective of the landowners CAEPLA represents. I have provided you our position papers in the National Energy Board’s Land Matters Consultation Initiative on Company Interactions with Landowners which includes discussion of Pipeline Crossing Issues and landowner positions on Abandonment of Pipelines and the collecting of funds for the same. I also include a 2009 letter from CEPA on the subject of Damage Prevention (pipeline crossings) to the NEB with a Saskatchewan landowner, Stephanie’s, candid views attached at the beginning. I have also provided the CAEPLA final argument in the recent NEB Enbridge Line 9 Reversal Hearing. I think this document provides some general history of CAEPLA, where we started and where we are today. Lastly, I attach a recent letter sent to the Board (NEB) by landowners and landowner associations concerning pipeline crossing issues.

My goal this morning is to bring perspective to the issues of landowners when confronted by pipeline companies. That is, the issues when private property owners, like yourselves, come up against government supported and subsidized corporations that are allowed to come packing with government regulations to take our lands, our rights and leave us with annual risks, liabilities, a duty of care that we do not want, costs and the pipeline junk which includes the resulting safety and liability issues of historical contamination and pipeline collapse when the companies pack up and leave.

Before I proceed I would like you to pretend you are sitting around a kitchen table with your family and a “land agent” has just left you with a brown envelope with a Section 87 Notice, an NEB Regulatory Notice stating that a pipeline company is going to put a pipeline in your backyard and the easement agreement and the compensation offer are included.

The stress has only just begun. Next come teams of land agents, the men trained in profiling and in telling every tale they can to get the deal signed while they sit at your kitchen table drinking your coffee. He/she might even be your neighbour’s son or daughter. It is like you have stepped into a spaghetti western with cowboys coming to your door, not packing a gun, but a big smile, lots of lies and packing government regulations that allow them to threaten you if you question them.

Pipeline company bullies – forgive me but there is often really no other word for it — packing regulations that allow government sponsored industries and their shareholders to “expropriate” our land while leaving our names on title and the discriminatory transfer of pipeline company responsibilities, duty of care to private landowners and the resulting decreased land values is legislated theft. And they keep harassing you until you give up and sign.

As can be seen in the transcripts of your previous guest’s presentations to date, pipeline companies have no real accountability to anyone and they haven’t since 1959. CEPA, NRCan, the CSA, Canadian Safety Standards Association, Alberta ERCB, Saskatchewan Government, and self-admitted “industry partner” Gaetan Caron, chairman of the NEB, said nothing to you but that everything is wonderful, safe and sustainable. Well, it is not, and it is time everyone understands what is really going on.

Industry, regulators, government officials, all of these participants, are expert at seeming “reasonable” while promoting the privilege and protection of the pipeline industry. This industry has had the wild card of a regulator willing to grant Right of Entry and expropriate land from a landowner rather than be forced to negotiate a business deal for the acquisition of the land. This industry is not forced to function in the free market and resists negotiating cost effective binding contracts. It’s an industry that tells its regulator what to do, what to say and gets legislation passed that protects it from its responsibilities and the realities of the business world. The description is “regulatory capture” or when the regulatED become the regulatORS.

Mr. Corey from NRCan stated that pipeline companies are fully responsible for cleaning up spills. Then why are there spills and contaminated properties across Canada that have not been cleaned up. As I pointed out at the recent abandonment cost estimates hearing there is contamination in the Enbridge and TransNorthern pipeline corridor just east of Toronto that has been there for twenty years and more has recently been uncovered as Enbridge does integrity digs to repair the polyethylene coating disaster on line 9 in preparation for reversal. I also have a letter I read, at the hearing, from a Manitoba resident complaining of an Enbridge spill on her property that had never been cleaned up and I also know of other spills where landowners have signed confidentiality agreements and cannot talk about what was left behind. The NEB regulations and oversight protects companies from having to do due diligence to landowners.

The Expropriation process known as “Right of Entry” in the Canadian pipeline world and “Eminent Domain or “Condemnation” in the United States, is much different than expropriation as most of us know it. Under pipeline legislation and power corridor legislation these “private or shareholder” companies can take “use” of our land for their profit while leaving us with resulting annual risks, liabilities, costs and a duty of care because our name is still on title. Under most expropriation and government takings the land title is also transferred, transferring all the related risks. Pipeline easement agreements leave landowners with risks and liabilities that should be addressed in an ironclad free market contract or lease that would include oversight and the discipline of insurance.

The NEB, emphatically states, it has nothing to do with the easement agreement, it says it is a private contractual agreement negotiated between the landowner and the pipeline company. The NEB says the same about compensation. This is fully misleading and misrepresents the truth. Pipeline companies, packing the NEB regulations and regulatory documents that allow them the right to take your land rights do not negotiate a free market contract that will stand up in a court of law. The NEB Act trumps any easement. There is no real negotiation, it is take it or leave it when it comes to the easement. The land agent might increase the compensation a little if you raise your voice, but again it comes down to take it or leave it. The last thing they want is an iron clad business contract.

Under free market conditions there would be a willing buyer and a willing seller, hiring legal experts to protect both sides interests, negotiating an agreement that would be responsible, addressing safety, environment, liability and other legal issues in an annual lease agreement that also covers compensation representing a fair rental or share price; a business agreement that is beneficial to each side. What happens under the NEB Act is just legislated theft.

When I rent land from my neighbour for agricultural use, contract law and the courts protect me and my neighbour. I do not get to go in packing regulations and I certainly can’t force him to take it.

The NEB extends itself further into the murk of discrimination against landowners with its claim of having nothing to do with the contracts or compensation. They fail to explain further that its regulations, and any new regulations that its pipeline partners talk them into, supersede any covenants in those “private contractual easement agreements”. And yes, most of the regulatory change in the past 50 years has been at the behest of the pipeline industry.

The NEB and the industry have a revolving door when it comes to employees. Brenda Kenny, CEPA’s President was a long time employee at the NEB, as were a number of other CEPA people past and present. At the recent abandonment cost estimates hearing two of the regulatory people representing Enbridge had just recently worked at the NEB as regulatory officers. I think the term sometimes used for these situations is incestuous.

Landowners are not just stakeholders. Like you, Honorable Senators, we are property owners. We bought our property as a place to live, a lifestyle choice, an investment, to ranch our cattle, to crop farm or run any other business zoning allowed. We did not request pipelines. We live, raise families and work on these properties, yet we have had pipelines enforced on our backyards, that do not respect our stewardship or legal obligations. Our name is on title and the NEB legislation leaves our future to the whim of pipeline companies and their regulatory partners.

Even the Auditor General recognized landowner concerns and issues in her 1998 review of the NEB. The NEB hired a consultant to advise them on how to address the Auditor General’s concerns, in particular those related to landowners and stakeholders. The Purvin Gertz Report was very critical of the way the NEB addressed landowner concerns, but rather than address them the NEB provided the usual window dressing and then appointed the author of the report to the NEB Board itself.

Why the pipeline industry and its regulatory partners wish to make enemies of a pro-development group like landowners, the people minding the pipelines, is anybody’s guess. But it seems to be a very dangerous and ill begotten path to treat the people industry and regulators call the “first line of defence” in such a fashion.

I will now proceed to provide you with some history of our relationship with the NEB.

In 1988, Section 112 of the NEB Act was created and the legislation was then reworked in 1990 since it was not properly done in 1988. A Senator at that time stated that the legislation was questionable from a landowner rights perspective. It created new restrictions to the landowner’s right to farm over the pipelines and also restricted 200 more feet of our land along the pipeline. That is 100 feet on each side of the 60 foot easement. Our original easements gave us the right to farm over the pipelines and stated that the company was to compensate for any land taken for the operation of its pipelines. Those old 60 foot easements are now 260 feet, that is, 4X the width with no compensation.

Section 112 was created to allow pipeline companies the right to leave pipelines in the ground that are too shallow, corroded, too thin and designed with ineffective protective coatings that compromise safety. These regulations protect the companies and their shareholders from the cost of upgrading its infrastructure and addressing those safety issues. It is easier to restrict the activity of farmers over the pipelines than repair them. Imagine restricting traffic forever rather than upgrading a deteriorating overpass.

For 20 years we have been asking that regulations be changed to have pipelines buried 6 feet deep and provide thicker pipes in rural areas because we farm over the pipelines and are concerned with our safety and the safety of the pipeline. The CSA standards are only 24” of cover and thicker pipes in highly populated areas. We have pictures at our web site of pipelines with only 1 foot of cover. They should be dug up, replaced and buried deeper.

CSA standards are set by the industry itself, there are no landowner groups involved. NEB regulations state in many instances “to CSA standards”, but the CSA document is not readily available to landowners or the public, it costs about $750 to purchase it.

Interestingly, farmers can no longer have buried fuel tanks, they must be above ground and must be either double hulled or surrounded by a burm … no more buried tanks. Why the double standards; why are pipelines, that are under high pressure not double walled (hulled). Why the double standards; because they can.

Train cars are now constructed double hulled and can be heated to ship bitumen directly. It takes two pipelines to ship Dilbit, the diluted bitumen. (condensates)

In the Omnibus Bill C38 (May of 2012) NEB regulations were changed to put monetary and criminal penalties on farmers if they do not ask permission to cross pipelines; on summary conviction, a fine of up to $100,000 and/or imprisonment up to 1 year; on conviction on indictment, a fine of up to $1,000,000 and/or imprisonment up to 5 years. Too bad the presidents of the pipeline companies do not suffer the same consequences for polluting miles of private property. Instead they get multi-million dollar pensions.

The pipelines want prescriptive regulations for landowners and stakeholders and only NEB goal oriented regulations for themselves. Interestingly, NEB goal oriented regulations include guidance notes rather than prescriptive regulations. The Guidance notes cannot be used as standards or evidence in the NEB quasi judicial hearings since they are only guides as CAEPLA found out in a jurisdictional hearing.

Let me read a landowner’s perspective on goal oriented regulations:

Hi Dave,

The letter from CEPA to the board is most disturbing. They are so candid in their request to find ways to penalize third parties (looking to sec 51.4, and apparently stretching sec 48 to fit this plan). And, in the same letter looking for confirmation that audits will NOT be conducted to ensure compliance with guidance notes or NEB regulations. That they, very blatantly, want prescriptive regulation with “effective enforcement and consequence” for 3rd parties and goal oriented regulatory text for the pipeline companies is nonsense. Using that same logic…. In prisons, the guards would be there with clear and enforceable rules for visitors and goal oriented “suggestions” for the inmates? In hockey, the refs keep an eye on the audience while the game goes on, with the players putting themselves in the penalty box?!?!?

If I understand correctly, part of the reason that the crossing regulation sec 112 is so vague is because of discrepancy between the English and French versions? Really, nobody has figured out how to fix that?

Anyhow, before I ramble too much…. After reading a little more and having my short-lived experience with the NEB, it is clear that they are hopelessly captured. Maybe just hopeless. It seems that arguing with them over specifics within the act will always be time consuming and (often) for little gain. I really feel that the NEB needs to be dissolved completely. There is just so many loopholes for them as it is right now.

As Mark Twain said: “Do not argue with an idiot. They will drag you down to their level and beat you with experience.”

The NEB has a lot of experience.  🙂

Stephanie Fradette

Moving on… In 1985 there were 5 abandonment regulations that held the companies responsible for removal of pipelines upon abandonment. Mr. Vollman, Past Chair of the NEB, an engineer at the time, was responsible for creating a document called a Discussion Paper on Negative Salvage Value. It discussed the issue of abandonment, pipeline removal and the collection of funds to finance the process. A year later, in 1986, the NEB gave notice to the industry that it would do nothing with the issue.

In 2002, CAEPLA invited the NEB to come to Sombra, Ontario to view farming practices and we made a presentation on the abandonment and funding issue. The Chair of the Board, Mr. Vollman and an Engineer at the time Mr. Gaetan Caron were both present and Mr. Vollman stated that the issue had been looked at but could not be resolved. He never mentioned the 1985 document.

CAEPLA accidently came across the document in 2007 and upon research found that the five abandonment regulations that called for the removal of pipelines at abandonment in 1985 had been changed a number of times, and now the regulations state that abandonment can now be approved in place.

In the meantime, two abandonment hearings and hundreds of thousands of dollars of landowners money later, the NEB has ignored its judicial burden of proof at hearings and decided to collect money, 50 years late, for only 20% removal of pipelines. It has ignored the legal evidence provided by landowners that clearly shows pipelines must be fully removed to protect landowners from liability. At one point the Board even changed its 2008 judicial decision that protected landowners (20% removal and 80% maintained into perpetuity) to a scheme of just 20% removal at the behest again of CEPA without a hearing.

In 2008, TransCanada Pipelines applied to the NEB to have jurisdiction of the NOVA pipeline system in Alberta transferred to Federal Jurisdiction, the NEB. The NEB got to decide if it would take over 25,000 km more pipeline and a tremendous increase to its bureaucratic mandate and authority. Such a jurisdictional change took away many longstanding rights that landowners had under Alberta Law. The NEB and Nova (TransCanada Pipelines) pretended the transfer would make no difference. CAEPLA and the Alberta Pipeline Landowner Association provided the proof, at great financial cost, showing the imposition of the change on Alberta landowners. The Alberta government did nothing for its landowners and the ERCB never once stood up for Alberta landowners.

In the presentation recently made to you by the Alberta regulator, the ERCB, they stated that in Alberta pipeline companies are always responsible for abandoned pipelines until they are removed. That is now not the case for these landowners under the NEB Act and the ERCB did nothing.

Recently, in the very high profile Jessica Ernst Fracking trial the lawyers for the ERCB argued that it owed no duty of care for landowners or groundwater. We understand now why they did nothing at the jurisdictional hearing for landowners. By contrast, in Ontario, shortly after the NOVA jurisdictional shift, the Ontario Energy Board stated that the NEB would have to recognize the rights of Ontario pipeline landowners when it attempted to take over jurisdiction of a pipeline in that province.

Landowners have had to spend hundreds of thousands of after tax dollars to defend their property. When CAEPLA was invited to participate in the LMCI process we were told that it would not cost landowners to take part. After CAEPLA provided professional expert evidence to support our positions the NEB backed out and would not pay. CAEPLA sends a monthly invoice and statement for our costly involvement in the LMCI process and hearings. The NEB refuses to pay the invoice even though the NEB told us our participation and evidence in that process was not to cost us anything. The NEB’s fundamental principle is that “Landowners should bear no cost for abandonment”.

50 years ago the Canadian Public and landowners were convinced by smooth talking politicians, bureaucrats and pipeline companies that it was in the public interest to move energy from the Canadian western producers to the Canadian eastern market. Politicians had survived a few years of bedlam in the House of Commons with a government falling as a result. They no longer wanted the accountability, responsibility or the risks to their future the debate of pipelines caused. The House of Commons quickly decided to unload their accountability on the subject and created the NEB. They created a buffer so that they could again convince the public that they were being looked after by an independent regulator.

The pipeline and power corridor issues are no longer about providing energy to Canadians or providing electricity to rural Canada. It is all about exporting natural resources and electricity for private company and shareholder profit. Expropriation or Right of Entry is no longer warranted, if it ever was, for private for profit companies.

I always understood that good pipeline engineering meant pipelines should be built as straight and as short as possible. Thus the justification for expropriation!

I have been made aware by both the industry and pipeline companies that good engineering practices have changed and these standards are no longer the case. In the recent Vantage Pipeline Project NEB application the company applied for the longest of three proposed routes and a pipeline with many 90 degree bends in it to avoid landowners that did not want the pipeline. This was also done to fall within exemptions in the NEB ACT that allow the pipeline company to avoid a Comprehensive Joint Environmental Assessment.

The NEB approved the project. These new engineering practices that would allow a pipeline company to go around the property of landowners who do not want a pipeline on their property proves that Expropriation, Right of Entry, Eminent Domain, Condemnation is no longer warranted and cannot be justified, if it ever could. Perhaps now pipeline companies will no longer be coddled by legislated theft that compromises safety and the environment. The NEB can be abandoned and the legislation repealed and pipeline companies will have to operate and be held accountable under contract law and the judicial courts because landowners can now say no. It may be difficult at first for the industry to adjust, to learn how to function in the free market economy and be accountable for their actions and their businesses. But we as landowners are confident it can be done.

In closing, I would like to say there is another way. I would argue that we already have a regulatory system available to rural landowners, one unfortunately not Constitutionally recognized, but one that is embodied in Common Law and common sense:

Property Rights. Our traditional system of property rights, a system when allowed to function has proven to be the fairest and most productive way to grow a prosperous economy.

I would like to make a few points about what property rights properly imply and what property rights are not.

Property Rights implies the right to choose.  The right to choose how to dispose of your property, the fruits of your labour.

This would include the right to say no in some cases, too.

Because the basis of any contract, any legitimate deal, is a willing buyer and a willing seller.

The pipeline industry is an industry, a business, like any other.  Or should be. As such, the norms of contract law and business agreements should govern it.  Willing buyers and willing sellers. If one party to a proposed transaction is not willing, or is subject to coercion, then there is not a legitimate contract. There is not a fair deal.  Not a fair trade.

What I am proposing is free trade for the energy transport and pipeline industry in Canada.  Free trade without intervention by government. Without government intervening on behalf of industry, via expropriation, the Right of Entry power landowners are subject to when dealing with pipeline companies.

Right of Entry is forced entry.  It is not voluntary. It is not free and is not fair. 

With the coercive power of expropriation, of forced entry behind them, pipeline companies have landowners over a barrel.  An oil barrel.

But it is an oil barrel that does not truly reflect the real economic costs of bringing it to market. Part of that cost is borne by farmers and ranchers and other rural landowners who are coerced into non-market transactions. Non market transactions that are effectively a transfer of wealth from one group of owners to another. From the owners of farms and ranches to the owners of shares in pipeline companies.

A transfer of wealth from rural to urban Canada.  A transfer from middle class and often less affluent, to the affluent.

Genuine property rights do not imply a right to hire a lawyer to attend a government hearing to receive a government decision as to the disposition of your property.  Property landowners or their parents and grandparents worked for, and pay taxes on.

Real property rights imply the right to choose. The right to say no if need be. The right to freely and voluntarily deal or not deal as you see fit. The right, and responsibility, to look after your property to the best of your ability, to put your property, your land, to its highest and best use for the benefit of the economy and community you live and work in.

Government should not be in the business of facilitating the transfer of wealth from farmers, ranchers, and taxpayers to the shareholders of pipeline companies. 

Rural landowners should be able to decline — to say “no thanks” — to any offer from a pipeline company.  The same way we can say no thank you to other rural landowners who may wish to buy or lease our land. The same way urban residents can say no to an offer to buy or lease their property without the government or a regulator intervening with a Right of Entry taking.

Government should support free trade in the energy transport sector.  It should support fair trade between rural landowners and pipeline companies.

Government should move this country closer to the Canadian tradition of property rights, not farther away.

Government should allow for self regulation – not just for pipeline companies, but for rural landowners too, when it comes to rental or real estate agreements for pipeline projects.

In closing, let me explain what this would all mean.

It would mean that the goals our society shares – a prosperous, growing economy and a protected and vibrant environment – can be accomplished.

It would mean the removal of the moral hazard that an inevitably captured regulatory regime results in, namely a reckless industry incapable of respecting neither the environment nor the property rights of citizens.

It would mean an end to what economists call the Tragedy of Commons – a scenario where actors – in this case the NEB and pipeline companies – who have no real “skin in the game,” so to speak, have no real incentive to look after the resources they use.

It may well mean – and this is for the market to decide – that alternative means of transport, such as railways, and technological innovation could also participate and spark economic development.

It would certainly mean that those of us who live and work and raise our families on the land would be recognized as the legitimate stewards of the land. Which would enable us to enlist the services of the insurance industry to provide the discipline landowners and the public so desperately need from pipeline projects.

It would mean that ranchers, farmers, and other rural landowners are brought in from the cold to partner in a growing and prosperous economy, and to promote the public’s interest in protecting the environment, and by extension, their own civil and property rights.

Thank you.