The Energy Regulation and Markets Review - Stikeman Elliott

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Canada
Ownership and market access restrictions
The requirements to obtain a licence and licensing conditions vary depending on the
sector involved and the type of activity that is the subject of the licence.
Those segments of the energy industry that are economically regulated are subject
to restrictions designed to eliminate the risk of market dominance and improper crosssubsidisation
of competitive business at the expense of captive ratepayers. For example,
there are restrictions in the electricity and gas sectors that prohibit regulated transmitters
and distributors from operating other competitive businesses. A shareholder is generally
permitted to own both competitive and regulated entities, although in those cases the
regulated entities will be subject to transfer-pricing provisions to ensure transactions
with affiliates are at fair market value. There may also be limitations on employee and
information sharing between regulated and unregulated affiliates.
Acquisition of control of a Canadian business, whether or not currently foreignowned,
by a non-Canadian investor requires review (generally pre-closing) or notification
(post-closing) under the Investment Canada Act. A transaction will be reviewed if it meets
certain asset thresholds. Reviewable transactions may not be completed until the Minister
of Industry Canada has found that the proposed transaction will be of ‘net benefit’ to
Canada. While the federal government has generally welcomed foreign investment, in
2010 the federal government exercised its authority to block the acquisition of PotashCorp
by BHP Billiton because it failed the ‘net benefit’ test. Since then, however, all reviewable
foreign investments have been approved and the PotashCorp case does not seem to have
materially deterred foreign investment. As a general rule, Canadian provinces do not
limit the acquisition of interests in the energy sector by foreign companies, although the
potential exists for restrictions and conditions to be imposed if regulatory approval of a
transaction is required.
iv Transfers of control and assignments
While the particular requirements vary by sector and jurisdiction, a regulator’s approval is
generally required before a regulated entity can issue any stocks or bonds, or dispose of or
encumber a significant part of its facilities. A regulator must also approve any change in
control of voting securities or any merger with or acquisition of another regulated entity.
In deciding whether to approve a particular transaction, the regulator must consider the
public interest and the continued financial stability of the regulated entity. The time to
obtain approval depends upon the complexity of the transaction and ranges between
several weeks and a few months.
The transfer of oil and gas interests in Crown leases, and licences for wells, pipelines
and facilities, is regulated by the respective government in each provincial jurisdiction.
Typically, the transfer of a licensee’s rights must be approved by a provincial regulatory
body. The regulatory body will assess the licensee’s and licensor’s creditworthiness and
will assess the exploration or production site prior to approving the transfer of the licence.
Mergers, acquisitions or changes of control may also be reviewable under both
federal and provincial legislation. The federal Competition Act establishes mandatory
pre-merger notification for mergers meeting certain financial thresholds and if notifiable,
the merger cannot be completed for specified no-close periods. The Competition Bureau
reviews mergers and may challenge a transaction before the Competition Tribunal.
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