SOR/2016-19: Canada-Newfoundland and Labrador Offshore Petroleum Administrative Monetary Penalties Regulations
REGISTRATION OF FEDERAL REGULATION - VIA OIC DATABASE, PRIOR TO PART II OF THE GAZETTE
February 19, 2016
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the regulations.) Issues Administrative Monetary Penalties (AMPs) provide the regulatory boards (the National Energy Board [NEB], the Canada-Newfoundland and Labrador Offshore Petroleum Board, and the Canada-Nova Scotia Offshore Petroleum Board; collectively “the Boards”) with an additional tool to supplement their existing compl... (Click for more)
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Published on February 19, 2016
SOR/2016-19: Canada-Newfoundland and Labrador Offshore Petroleum Administrative Monetary Penalties Regulations
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the regulations.) Issues Administrative Monetary Penalties (AMPs) provide the regulatory boards (the National Energy Board [NEB], the Canada-Newfoundland and Labrador Offshore Petroleum Board, and the Canada-Nova Scotia Offshore Petroleum Board; collectively “the Boards”) with an additional tool to supplement their existing compliance and enforcement regime. They are designed to promote compliance with legislative and regulatory requirements in a more cost-effective, and efficient manner, when harsher enforcement tools, such as revoking work authorizations or opting for court prosecution, are not appropriate. The availability of this tool would act to strengthen the existing regime and would bring it into alignment with the existing NEB compliance and enforcement regime for the onshore oil and gas sector. Background In 2009 and 2010, two large-scale oil spills from offshore oil and gas operations occurred: the Montara wellhead platform blowout off the northwest coast of Australia, and the Macondo field Deepwater Horizon oil rig blowout in the Gulf of Mexico. These incidents highlighted the safety and environmental risks inherent in offshore oil and gas activity, and the corresponding need for strong and transparent legal frameworks and corresponding regulatory regimes with stringent planning, prevention, and preparedness requirements. As a part of the response to these incidents, Part 1 of the Energy Safety and Security Act (the Act) strengthens safety and environmental protection in Canada’s offshore oil and gas sector by modernizing the liability and compensation regimes and updating incident preparedness and response requirements. It also amends the Accord Acts (the Canada–Newfoundland and Labrador Atlantic Accord Implementation Act and the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act) and the Canada Oil and Gas Operations Act (COGOA) to provide the three Boards with the authority to issue AMPs to operators in Canada’s offshore and northern onshore oil and gas sector. AMPs are monetary penalties that can be imposed by a Board on an individual or a company for incidents of non-compliance with legislation, regulations, permits, licences, certificate conditions, or Board decisions or orders. AMPs are a remedial compliance measure (regulatory) as opposed to a punitive measure (criminal). The Boards have a number of other tools at their disposal with respect to compliance and enforcement. For example, they can increase inspection activities, issue compliance orders pertaining to offences requiring remedial actions or completely stop work by revoking work authorizations. If an incident of non-compliance is grave enough, the applicable Board can initiate federal or provincial prosecution. Under the AMPs Regulations, the Boards will have another tool available to them: the ability to issue AMPs. The Act sets out many components of the AMPs regime, including specifying to whom liability for an AMP is to be attributed (e.g. an individual or a company, or an individual within a company, depending upon who committed or authorized the action or failure to act that resulted in a violation); what constitutes proof of a violation; the maximum daily penalties for individuals and for companies ($25,000 and $100,000 respectively), and that for each day a violation is committed or continues, it constitutes a separate violation; the content of the notice of violation; the defences unavailable to someone subject to an AMP (e.g. due diligence); the time frame (two years) within which a notice of violation has to be issued following the violation; that the Boards have the authority to make the nature of a violation, the identity of the individual or company that committed the violation, and the amount of the AMP imposed, public; the appeal process for reviewing AMP decisions should the person subject to an AMP seek to challenge it; and that a violation for which an AMP was imposed cannot also be the subject of a court prosecution. The Act also amends the COGOA and the Accord Acts to provide authority for the making of regulations to support the implementation of an AMPs regime in Canada’s offshore and northern onshore oil and gas sector. Objectives The objective of the Canada Oil and Gas Operations Administrative Monetary Penalties Regulations, the Canada–Newfoundland and Labrador Offshore Petroleum Administrative Monetary Penalties Regulations, and the Canada-Nova Scotia Offshore Petroleum Administrative Monetary Penalties Regulations (the AMPs Regulations) is to implement an AMPs regime for compliance activities in Canada’s offshore and northern onshore oil and gas sector. Description There is one AMPs Regulation for the COGOA and one each for the Accord Acts (i.e. three regulations total), referred to in this Regulatory Impact Analysis Statement (RIAS) as the AMPs Regulations. Their design is based on the existing AMPs regime in the Administrative Monetary Penalties Regulations (National Energy Board), prescribed under the National Energy Board Act. The AMPs Regulations do the following: 1. Designated provisions Section 2 of the AMPs Regulations sets out which provisions of the Accord Acts, the COGOA and their supporting regulations are designated as violations for the purposes of imposing AMPs. The regulations supporting the Accord Acts and the COGOA include the respective Drilling and Production Regulations, the Installations Regulations, the Geophysical Operations Regulations, and the Operations Regulations. (see footnote 1) Examples of violations that could be subject to an AMP include failure to post a copy of the geophysical operation authorization in a conspicuous location in the vessel, platform or aircraft from which the geophysical operation is conducted (requirement under the Geophysical Operations Regulations); or failure to have a sufficient number of trained and competent individuals available to complete the authorized work or activities and to carry out any work or activity safely and without pollution (requirement under the Drilling and Production Regulations). Section 2 also designates as violations the contravention of a direction, requirement, decision or order made under the COGOA or the Accord Acts. It also designates as violations the contravention of a term or condition of an operating licence or authorization that is issued, or of an approval or exemption that is granted, under the COGOA or the Accord Acts. 2. Classification of violations Section 3 of the AMPs Regulations sets out the two types of violations (i.e. A and B), which have different baseline penalty amounts: Type A violations are violations of administrative and record-keeping requirements representing a low risk to safety or the environment; Type B violations are all other violations (the vast majority), such as failure to follow an order issued by Board officers or violating safety, environmental, or resource management requirements. 3. Determination of the penalty amount Section 4 of the AMPs Regulations establishes the method to be used by the applicable Board to determine the penalty amount for individual violations. The type of violation (i.e. either A or B) determines the baseline penalty amount of an AMP. Consistent with the AMPs regime under the National Energy Board Act, Type A violations have baseline penalty amounts of $1,365 for an individual and $5,025 for any other person (e.g. a company). Type B violations have baseline penalty amounts of $10,000 for an individual and $40,000 for any other person. A table of criteria that relate to circumstances of the violation will be used by the Board to determine the level of gravity of the non-compliance. The Board will assign a gravity value to each of those criteria (e.g. 0 to +2; -2 to +2) and add them to determine the total gravity value. For example, the Board will assign a gravity value of 0 to +2 depending upon whether the person derived any competitive or economic benefit from the violation. Similarly, the gravity of a person’s violation could vary by a margin of -2 to +2 depending upon whether they made reasonable efforts to mitigate or reverse the violation’s effects. The circumstances surrounding each violation will therefore be different and the amount of the penalty imposed will vary as a result. The Accord Acts and the COGOA (as amended by the Act) stipulate that a violation that is committed or continues on more than one day will constitute a separate violation for each day on which it is committed or continued. The Board makes the determination as to when a violation is committed and for how long it continues when issuing a notice of violation. The daily maximum AMP penalty that can be imposed on individuals is $25,000, and on companies, it is $100,000. 4. Service of documents Once the Board decides to issue a notice of violation, it will be served on the violator. Section 5 of the AMPs Regulations requires that notices of violation and other documents be served in person, through registered mail, by courier, by fax or by other electronic means. “Electronic means” is purposefully not defined, and is meant to provide built-in flexibility for continued technological advancements. Currently, “electronic means” predominantly means email, but in the future, there may be other appropriate electronic means of service that emerge. “One-for-One” Rule The “One-for-One” Rule does not apply to the AMPs Regulations, as there is no change in administrative costs to business. Small business lens The small business lens does not apply to the AMPs Regulations, as they do not impact small businesses. Consultation In January 2014, a Steering Committee was convened by Natural Resources Canada (NRCan), Indigenous and Northern Affairs Canada (INAC), the two provincial governments, and the three Boards, to develop the AMPs Regulations and consult with stakeholders. The Steering Committee met three times in 2014 (every four months), and monthly in early 2015. The Steering Committee’s Technical Working Group conducted technical analysis to inform the development of the Regulations, and met as needed: multiple times between each of the Steering Committee meetings in 2014, and at least once between each of the Steering Committee meetings in 2015. Consultations were held with industry stakeholders, Aboriginal groups, and the territorial governments on the AMPs Regulations in April, May, and early July of 2015. Subsequent to these consultations, the 30-day comment period provided through the Canada Gazette, Part I, prepublication resulted in the following comments received by NRCan: The offshore oil and gas industry (primarily as represented by an industry association) provided a total of 91 comments, 82 of which were requests to remove or reclassify potential violations. The remaining nine comments were divided among five broad themes. No other stakeholders submitted comments. The five themes covered in the comments submitted by industry were as follows: applicability of AMPs to individuals; criteria for determining penalty amounts; implementation of the regime by regulatory officials designated as AMP officers (or “designated authorities”); number and type of potential violations; and the format of the AMPs Regulations. Overall, in order for the regime to remain consistent with the legislated policy intent, few changes to the AMPs Regulations were made. However, all comments related to the implementation of the AMPs regime will be taken into consideration by the Boards as they operationalize the regime. Applicability of AMPs to individuals Industry was concerned that applying AMPs to individuals rather than to company officers exclusively could be detrimental to industry efforts to improve their safety culture, and might have privacy implications. The policy intent of the legislation is to ensure that the Boards have the authority to issue AMPs to individuals, as appropriate in the circumstances of a violation, and not only to company officers. Therefore, the enabling regulatory authority in the Act prescribes that AMPs may be issued to individuals who commit an infraction. This ability to apply an AMP to the person to whom a violation is attributable is an important element of the AMPs regime, and is consistent with other AMP regimes across Canada, including the AMP regime under the National Energy Board Act. A change to this authority is not being sought. Further, AMPs will support efforts by industry to instill safety culture, by encouraging the adoption of appropriate safety measures by individuals and officers alike. The Boards will have the flexibility to issue AMPs as one of the compliance tools at their disposal, and will use the appropriate tool for a given situation. Thorough legal review of the AMPs regime during the development of its enabling authorities in the Act determined that the AMPs regime poses no constitutional issues or conflicts with privacy legislation. Criteria for determining penalty amounts The Steering Committee considers the criteria in the AMPs Regulations for determining penalty amounts to be relevant to both individuals and to companies, as applicable in a given situation. For example, regarding deriving economic benefit from a violation, an individual could have received a promotion as a result of taking measures that cut costs but were less safe. Circumstances will dictate the type of compliance or enforcement measure that is appropriate; therefore, AMPs would not be the appropriate tool to use in cases where a non-monetary instrument would be more applicable. Implementation of the regime by regulatory officials designated as AMP officers (or “designated authorities”) Questions were raised as to the discretion such officers will have; the consistency and predictability of their application of the AMPs regime; and the ability of individuals and companies to appeal officers’ AMP decisions. Like any other regulatory enforcement officer, these AMP officers will be trained regulatory officials, with the expertise to be able to select the appropriate compliance or enforcement tool to use in a given situation. It is in the best interests of the Government, the Boards, and the offshore oil and gas industry to have the AMPs regime applied in a consistent and predictable manner. Therefore, each of the Boards will be able to determine the appropriate number of AMP officers to designate to ensure that the AMPs regime is implemented consistently and predictably, within each Board’s specific operational context. Should a person to whom an AMP is issued disagree with the penalty, the review process included in the Act provides the means for resolving such a dispute, including by referring it to an independent third party. Number and type of potential violations As to the number and type of potential violations, 82 of the 91 comments submitted by industry pertained to this theme, with the majority being requests to remove or reclassify from Type B to Type A specified potential violations. Some of the requests may have arisen because the RIAS prepublished with the Regulations, in the Canada Gazette, Part I, did not state that resource management or conservation violations were Type B violations. That omission has been clarified in this RIAS, and responds to many of the questions raised by industry. In addition to that correction, as a result of these comments, each potential violation referenced was reviewed, eight of the requests for removal or reclassification were accepted, and the AMPs Regulations were amended accordingly. For further clarification of the types of potential violations, provisions were included as potential Type B violations if they related to safety, environmental protection, or conservation of resources. Provisions were included as potential Type A if they were administrative requirements and of lower risk. (Note that provisions relating to installation design requirements were excluded from the AMPs regime, as design concerns are sufficiently covered by other aspects of the regulatory process, such as the process to obtain a Certificate of Fitness for installations, which is required prior to the issuance of a work or activity authorization.) Moreover, if a deviation from a regulatory requirement is granted by the Board, abiding by any new conditions attached to that approval would constitute abiding by the AMPs Regulations; therefore, an AMP would not be issued for non-compliance with the regulation from which permission to deviate had been obtained. Per current practice, the Board’s prior approval (and any additional conditions) must be obtained for any deviation from regulatory requirements. Format of the AMPs Regulations Finally, with respect to the format of the AMPS Regulations — listing in schedules to the AMPs Regulations the legislative and regulatory provisions the contravention of which could result in an AMP — the Steering Committee determined that the current approach (without short-form descriptions of each provision) is well-founded, from a legal perspective, and is consistent with other AMP models currently in place. Further information, as necessary, may be incorporated into guidance materials produced by the Boards. Rationale AMPs are a viable alternative to court prosecution, given that they can be more cost-effective and that penalties can be imposed within a short time frame. In turn, instances of non-compliance can be dealt with in a timely manner, thereby promoting compliance and safe and responsible oil and gas development in Canada’s offshore and northern onshore oil and gas sector. There are no costs associated with the implementation of the AMPs Regulations. The Boards will carry out their compliance, enforcement, and inspection activities as usual, with AMPs as an additional tool available to them. Furthermore, without the AMPs Regulations, the AMPs regime established by the Act could not be operational. Implementation, enforcement and service standards The AMPs Regulations enter into force on February 26, 2016, or on the day on which they are registered, if it is after February 26, 2016. Contact Daniel Morin Senior Policy Analyst Offshore Petroleum Management Division Natural Resources Canada 580 Booth Street Ottawa, Ontario K1A 0E4 Telephone: 343-292-6155 Email: [email protected] Footnote a S.C. 2015, c. 4, s. 38 Footnote b S.C. 1987, c. 3; S.C. 2014, c. 13, s. 3 Footnote c S.C. 2015, c. 4, s. 66 Footnote d S.C. 1987, c. 3; S.C. 2014, c. 13, s. 3 Footnote 1 There are no Operations Regulations supporting the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act. The other regulations listed here are consistent across the Accord Acts and the COGOA.
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