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Alberta has been accused of poor transparency and foot-dragging over incidents such as the Rainbow Pipeline spill in 2011.Ian Jackson/The Canadian Press

Alberta's energy sector is getting a regulatory overhaul as the province aims to burnish its environmental reputation and show it has a firm hand on the torrid pace of oil and gas development.

The revamp comes at a crucial time: The energy-rich province has faced criticism for its environmental regulations, penalties, and enforcement rules and track record.

Opponents of the oil sands argue that the province has weak policies and that development of future projects, including pipelines crucial for expanding Canada's energy industry, should be blocked. They are lined up against the Keystone XL pipeline and two proposals to move bitumen to British Columbia's coast, while a trade spat is brewing between Canada and the European Union over oil sands exports.

The regulatory makeover faces numerous challenges. The government is folding all regulatory powers, now scattered among separate bodies, into one entity, dubbed the Alberta Energy Regulator. The new organization must prove itself superior to the old system, demonstrate its new tougher fines will make a difference in behaviour in the oil patch, and remain independent. The government expects the transition to take about a year.

The Energy Resources Conservation Board (ERCB) will disappear and regulatory powers within provincial departments such as Alberta Environment and Sustainable Resource Development will be transferred to the Alberta Energy Regulator in June. It is part of the government's attempt to streamline the regulatory process, something the industry has been seeking for years.

The arm's-length organization has named Gerry Protti, the founding president of the Canadian Association of Petroleum Producers – the energy industry's lobby group – as its chairman. Mr. Protti spent 15 years at natural gas giant Encana Corp., and also served as assistant deputy minister for Alberta's energy department. No one questions whether he understands the oil and gas business. Some however, question his independence.

Mr. Protti, along with Energy Minister Ken Hughes, tapped Jim Ellis to serve as the regulator's chief executive officer. Mr. Ellis served as deputy energy minister and led the government's "oil market diversification strategy," essentially leading Alberta's push for pipelines.

Mr. Protti and Mr. Ellis will be praised if they can patch up the regulatory system's current shortcomings.

Richard Dixon, executive director of the centre for applied business research in energy and environment at the Alberta School of Business at the University of Alberta, points to Directive 74 as an example of the ERCB's past failures.

The rule is designed to force companies to clean up toxic tailings ponds tied to oil sands mining more quickly, and Suncor Energy Inc. met the demands. But when Syncrude Canada Ltd. and Imperial Oil Ltd. fell short of the ERCB's standards, they were still allowed to proceed. The ERCB said Imperial, for example, would meet the directive's objectives over the lifetime of the project, just not within the legislated timelines.

"There's been no credibility at all with anyone on how Directive 74 has been managed," Mr. Dixon said.

Alberta has also been accused of poor transparency and foot-dragging. The ERCB's chief operating officer rejected a request from staff to hold a public inquiry into the Rainbow Pipeline spill, according to documents obtained by Greenpeace Canada. A break in the Rainbow Pipeline two years ago was the largest spill in Alberta in 36 years. Plains All American Pipeline LP, the pipeline's owner, could face up to $1.5-million in fines after the government laid charges this April.

Suncor spilled waste water into the Athabasca River for three days in March, 2011, but the accident was not made public until March of this year, when Alberta's Environment and Sustainable Resource Development ordered Suncor to keep the waste-water pond closed off from the river, find the source of the toxic elements in the water, and review its treatment process.

Mr. Protti argues the new system, which comes with fatter fines, will be improved through stronger governance. Board members will no longer be the same folks sitting on hearing panels and running operations. These roles will be separated. Further, the rule-making process will also change. Policy questions will be removed from the regulator and put to the energy and environment ministers through the new policy management office.

"You're going to earn your respect day by day, issue by issue, hearing by hearing," Mr. Protti said. "What I'd like to do is get third parties, frankly outside the province of Alberta, maybe internationally, commenting after we've been operating here for a few months, a year. How are we doing?" he said.

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