The National Energy Board has sidelined all three Energy East reviewers following complaints that two of them met privately with a TransCanada consultant last year and discussed the proposed oil pipeline.
The Calgary-based national energy regulator says it has also limited the duties of board chairman Peter Watson and vice-chair Lyne Mercier, who will not be involved in choosing the new panel to resume Energy East hearings at a later date.
Media reports this summer revealed that Watson, Mercier and board member Jacques Gauthier met privately in January 2015 with former Quebec premier Jean Charest, who was a paid consultant for TransCanada Corp at the time.
Mercier, Gauthier and Roland George were all assigned to public hearings assessing the TransCanada pipeline bid.
"All three panel members have decided to recuse themselves in order to preserve the integrity of the National Energy Board and of the Energy East and Eastern Mainline Review," the board said in a release late Friday afternoon.
"The members acted in good faith and have pledged not to discuss these two applications with either other board members or board staff.
Watson, the board chair, and Mercier won't perform their normal duties of assigning a new panel.
"They are doing so because they understand that their participation in these meetings may have created an apprehension of bias which could undermine the integrity and the credibility of the board's decision-making process," said the release.
Late last month, the federally mandated and government-appointed energy regulator suspended the fledgling hearings into the proposed, 4,500-kilometre oil pipeline.
More than 50 environmental and governance advocates this week urged Prime Minister Justin Trudeau to scrap the whole NEB review process and start over with reviews on Energy East and the proposed Trans Mountain pipeline expansion in B.C.
But Natural Resources Minister Jim Carr says that, while an overhaul of the energy regulator is slated for the longer term, existing major oil infrastructure bids will be assessed under the law as it currently exists.
"It's up to the National Energy Board to determine the way it governs itself," said Carr.
"In the longer term, the government of Canada will look at the mandate of the National Energy Board, to look at its corporate governance, to look at its relationship with the government of Canada. But we will now operate under the law as it exists and the National Energy Board will have to take a decision in this matter."
The public dispute over the panellists' behaviour further clouds a regulatory and review system that has been the subject of fierce complaints for years from both environmental advocates and industry.
The former Conservative government overhauled the rules in 2012 to speed up environmental assessments and reduce regulatory hurdles. The changes did not result in any major new pipeline approvals but did inflame debate among environmental and First Nations critics.
The Liberals came to office last November promising to revamp the environmental review system, reform the NEB, and also enact tough new climate policies to curb greenhouse gas emissions.
Those various promises will be under intense scrutiny this autumn.
"The existing NEB is an economic regulator and isn't equipped to deal with the commitments Trudeau has made on climate change and indigenous reconciliation," Keith Stewart of Greenpeace Canada said Friday in an email.
"Trudeau has acknowledged both the NEB and environmental assessment processes are fatally flawed, so he can't really expect a pipeline approved under (Stephen) Harper's approval process to be seen as legitimate."
Carr maintained there's plenty of time for the NEB to get the Energy East hearings back on track and said ultimately the decision whether to approve the pipeline will be up to the Liberal cabinet, based on what's in the national interest.
"There are 21 months of hearings in front of us, followed by a period of government review," said Carr.
But the NEB climbdown only strengthened calls from environmental critics to scrap the whole board process.
"The review of Energy East should be suspended until the NEB is fixed," Keith Brooks of Environmental Defence in a release. "It makes no sense to assess Energy East, the longest and largest tarsands pipeline ever, using a process everyone agrees is deeply flawed."