Skip to main content

PLEASE NOTE: For everyone’s safety, Fasken recommends anyone on-site at our Canadian offices be familiar with the COVID-19 recommendations in place which may include one or more of the following: social distancing, hand sanitizing, wearing a mask in common areas and proof of full vaccination. These measures apply to lawyers, staff, clients, service providers and other visitors.

Bulletin

Beyond the Headlines Part 1: Indigenous Participation in the Regulated Utility Sector

Fasken
Reading Time 7 minute read
Subscribe

Overview

Energy Bulletin

While stories involving Indigenous opposition to large energy projects have made the headlines in recent years, in practice, Indigenous participation in the energy sector has become increasingly prevalent – leading to new opportunities for Indigenous communities, proponents and utilities, and potentially fundamentally altering the role of traditional provincial energy regulators. It is this relatively untold story that is the dominant narrative on the ground.

This bulletin, the first in a two-part series, provides an overview of Indigenous ownership of, and investments in, Canada’s energy infrastructure and explores the potential shift in utilities regulation that will result from the growth of Indigenous ownership and participation in Canada’s changing energy landscape.

Indigenous Ownership – A Growing Trend

Indigenous peoples are increasingly pursuing business alliances with the private sector in order to take a more active role in the development of their territories. The stability of income streams from energy projects such as run-of-river hydro, wind and solar generation, electricity storage, pipelines and transmission infrastructure have attracted investments from Indigenous communities seeking equity participation in major projects. These equity ownership arrangements have taken a number of forms, such as:

  • In 2019, seven Indigenous communities purchased a combined 40 percent equity ownership stake in Alberta PowerLine.
  • In 2020, six Indigenous communities invested $93 million in the Cascade Power Project near Edson, Alberta.
  • Indigenous-led groups are also committed to pursuing ownership of the Trans Mountain pipeline.

Indigenous equity ownership differs from traditional approaches to Indigenous participation (e.g., direct benefits and revenue sharing arrangements under impact benefits agreements) as it more directly connects Indigenous interests with project outcomes over the long-term. While impact benefit agreements and other traditional forms of structuring Indigenous participation in projects continue to play an essential role in mitigating regulatory uncertainty, equity ownership can provide additional benefits. Ultimately, equity ownership supports economic reconciliation, laying the foundation for shared economic prosperity that is increasingly sought after by corporations to meet their own environmental, social and governance (ESG) priorities.

While recognizing that Indigenous peoples are not a homogeneous group, meaningful equity ownership can provide a number of benefits to Indigenous communities, including:

  • Shifting away from a passive participation model to one that drives active involvement in project decision-making, including the integration and exchange of Indigenous knowledge and values;
  • Generating long-term stable revenue opportunities that enhance overall economic stability;
  • Building community capacity through corporate and managerial employment and training opportunities; and
  • Creating economic opportunities for future generations.

At the same time, efforts to create Indigenous equity ownership opportunities face statutory, structural and taxation requirements that demand careful thought and planning. Negotiating such partnerships requires an understanding of project governance and decision-making,  commercial structuring options, how to access capital to backstop the equity participation, and mechanisms to ensure a clear allocation of financial risk. The conversation on risk allocation is an especially important building block for successful equity participation by Indigenous communities, as each project has its own specific risk profile and each Indigenous community has unique circumstances that affect its appetite to assume commercial risk. Indigenous communities need to clearly understand such risks in the context of their desire for dependable revenue over time.

In Part II in this bulletin series, we will explore some of the solutions that Indigenous and industry partners have adopted to address these challenges, as well as the emergence of government-backed funding opportunities in different jurisdictions that have made it easier for Indigenous communities to benefit from ownership opportunities.

The recent increase in Indigenous equity ownership demonstrates a desire to align the interests of energy project proponents and Indigenous communities in a way that goes far beyond consultation alone. While barriers remain, Indigenous equity ownership opportunities in the energy sector will continue to grow in the coming years, creating new pressures on utilities and utilities regulators in Canada.

Indigenous Self-Regulation and Other Shifts in the Regulatory Landscape

The growing trend of Indigenous communities becoming owners and part-owners of energy sector projects has raised important questions for utilities regulators, including the prospect of Indigenous-led oversight in the energy sector. In particular, there are demands from some Indigenous groups for the differentiated regulation of Indigenous utilities, which could see utilities that would otherwise fall within the jurisdiction of a provincial utilities regulator instead becoming self-regulating, overseen by a representative organization, or regulated by an Indigenous utilities commission.

While these issues are expected to confront energy regulators in all Canadian jurisdictions, the questions have arisen first in British Columbia. In particular, the merits and challenges of differentiated regulation for Indigenous utilities were canvassed by the British Columbia Utilities Commission (BCUC) which, in 2020, released its Final Report as part of the Indigenous Utilities Regulation Inquiry.

The Final Report includes thirty-five recommendations for the province, including with respect to the development of Indigenous-controlled utilities. These recommendations represent a framework for potential foundational change to the regulatory framework applicable to public utilities and power producers in British Columbia, and may provide a model as other jurisdictions grapple with the same issues.

The BCUC characterized an Indigenous utility as one where an Indigenous group has the ability to influence the utility’s decisions and actions, either through legal (de jure) control or effective (de facto) control. For example:

  • An Indigenous utility developing a clean generation project near existing transmission infrastructure, with the electricity produced being sold to an incumbent utility at a price that allows the Indigenous utility to recover its costs; or
  • A remote, off grid, Indigenous community developing a clean generation project to replace diesel generated electricity. The electricity generated could be distributed by the Indigenous utility or sold to an existing utility for distribution to the community.

In particular, the BCUC addressed three notable issues relating to Indigenous utilities:

  • Self-Regulation: The BCUC recommended that Indigenous utilities be able to easily “opt out” of BCUC regulation on their reserve, modern treaty, or self-government lands in favour of a regulatory framework prescribed by the group itself. While the scope and form of regulation could vary based on the capacity of the Indigenous group, a robust complaint and dispute resolution process would be needed to ensure consumer protection (as approved by a panel or body of Indigenous peoples rather than the BCUC). The BCUC also noted that Indigenous groups could negotiate expanded areas of self-regulation through modern treaties or other agreements as contemplated by the province’s Declaration on the Rights of Indigenous Peoples Act (DRIPA).
  • Impacts to Incumbent Utilities: The BCUC recommended that it be able to determine a fair compensation amount should the operations of an Indigenous utility materially impact an incumbent utility. As most communities on reserve or modern treaty lands take at least some utility services from an incumbent utility, the operations of new Indigenous  utilities could erode the load, or strand the assets, of incumbent utilities. The interplay between incumbent and Indigenous utilities presents a number of novel and interesting challenges for the bounds of traditional utilities regulation. These challenges will need to be considered and addressed, including impacts to the economic viability, resourcing and rate setting approaches of multiple utilities under differing regulatory regimes.
  • The Role of Regulators in Promoting Reconciliation: In addition to empowering Indigenous groups to regulate themselves by leveraging the expertise of the BCUC to build internal capacity, the BCUC also laid out how it must change to better address reconciliation and Indigenous issues generally. These institutional changes are increasingly relevant to all regulators, including: (1) increasing the role Indigenous peoples in regulatory proceedings (e.g., recruiting Indigenous staff, consultants and Commissioners); (2) developing strategies to build capacity in Indigenous-led utility regulation; and (3) modifying existing regulatory policies and procedures to better reflect the objectives of reconciliation. 

The timeframe for implementing the Final Report’s recommendations remains unclear. The Government of British Columbia may reform the province’s Utilities Commission Act in consideration of the DRIPA, or create a new legal framework for the regulation of Indigenous utilities. At this stage, the extent to which such changes will be adopted across Canada also remains to be seen.

Ultimately, any changes to the regulation of utilities will necessitate consultation with Indigenous groups, incumbent utilities and the public to ensure energy stability and the protection of consumers over the course of a period of change.

Conclusion

The role Indigenous peoples and their communities play within the energy sector has undergone considerable evolution over the last decade. The expansion of equity ownership opportunities, in particular, has the potential to promote marked advances in economic reconciliation within the energy sector and will lead to commercial innovation, as will be explored in more detail in Part II of this bulletin series.

As Indigenous ownership of energy infrastructure expands, so too will the discussion around the regulation of Indigenous utilities. This is a relatively nascent area, but potential changes to the regulation of utilities across Canada are particularly important considerations as the country enters a period of energy transition.

Authors

    Subscribe

    Receive email updates from our team

    Subscribe