Policy and Regulation at the National Energy Board
Policy and Regulation at the National Energy Board
Gaétan Caron, Chair and CEO
Speech to the the C.D. Howe Institute
January 13, 2014
I am pleased to be here today to discuss the interplay of policy and regulation at the National Energy Board (NEB).
I will start by outlining the Board’s role and activities: who we are and some of the key traits for which we are known.
I will then describe how the Canadian public interest with regard to energy issues is evolving. The NEB believes “the public interest is inclusive of all Canadians and refers to a balance of economic, environmental and social considerations that changes as society’s values and preferences change over time.”
Lastly, I will outline recent legislative changes that affected how the Board operates, and proposed legislative changes that may affect how we operate in the future.
NEB’s Role and Activities
Established in 1959, the NEB is charged with regulating pipelines, power lines, energy development and trade in the Canadian public interest. This includes regulating:
- Construction and operation of interprovincial and international oil and gas pipelines, international power lines and designated interprovincial power lines;
- Tolls and tariffs for pipelines under the NEB’s jurisdiction;
- Exports of natural gas, oil and electricity, as well as imports of natural gas; and
- Oil and gas exploration and development on frontier lands and offshore areas not covered by provincial or federal management agreements.
To give you a more tangible idea of what we do, consider the following figures:
- The NEB regulates approximately 73,000 kilometers of pipelines and 1,400 kilometers of power lines. In 2012, these pipelines shipped approximately $106.3 billion worth of energy products at an estimated transportation cost of $6.9 billion. The power lines transmitted approximately $2.2 billion worth of electricity.
- In 2012, the NEB conducted 253 compliance activities related to security, public safety, and environmental protection.
- Each year, the Board receives approximately 260 applications for pipeline/power line-related facilities and tolls, and 440 applications for export/import authorizations.
NEB Approach and Key Characteristics
But the figures I just mentioned are only part of the story. It is also important to recognize the unique manner and context in which the NEB operates.
First, the Board is and has always been an independent, quasi-judicial, federal regulatory tribunal. We operate within the mandate set for us by Parliament, but at arm’s length from government and free from political influence. Our role is to implement - not set - policy choices affirmed by legislation.
The Board and its staff must not only be free from bias, but be perceived as free from bias. This is upheld by an array of conflict of interest requirements, an NEB Code of Conduct, and prohibitions on investing or holding shares in energy companies. We also have guidelines on meetings with external parties as well as a requirement that decisions or recommendations must be based on evidence on the public record.
Second, our governing legislation requires us to integrate all relevant social, economic and environmental considerations related to a project when making a decision or recommendation. The integration of these three factors is at the heart of our mandate.
For example, when assessing applications to build facilities and installations, the NEB carefully evaluates all relevant information presented, including evidence related to:
- Design and safety;
- Environmental protection;
- Socio-economic matters;
- Impact on Aboriginal interests;
- Impact on landowners;
- Economic feasibility; and
- Any other public interest that may be affected.
Third, although attention is often focused on the NEB’s review of projects’ initial applications, we regulate over the complete life-cycle of projects. When they are being built, we inspect. When they are being operated, we audit. And when a pipeline has reached the end of its usefulness, we review abandonment applications to ensure that it is abandoned in a safe and environmentally responsible manner.
We also require the companies we regulate to anticipate, prevent, manage, and mitigate any potentially dangerous conditions associated with their activities. Our Board Members and staff will not hesitate to use our full enforcement toolkit to achieve compliance with rules and regulations protecting safety and the environment.
Evolving Public Interest
Now that you have a better idea of who we are and what we do, I will talk about the shifting landscape in which we operate. Legislative changes, which I will discuss in a moment, are part of this, but there has also been an evolution in the Canadian public interest with regard to pipelines and energy projects, including:
- Increased expectations of environmental accountability from Canadians;
- Growing concern over the safety of energy infrastructure; and
- Increased public scrutiny of major projects such as Northern Gateway, Keystone XL, and Line 9 in Ontario and Quebec.
The NEB is very aware of this shift and has responded in various ways. One initiative that I would like to highlight is our effort to increase the amount of easy-to-access pipeline information available to the public. The NEB website now includes safety and environmental compliance and enforcement information such as:
- NEB audits of company operations;
- Inspection Officer Orders and Incident Investigation Reports;
- Information on Administrative Monetary Penalties (which will be described later);
- Board Orders, Letters, and Directives related to safety and environmental issues;
- Corrective Action Plans related to the above; and
- Other relevant documents, including any significant correspondence.
Meaningful communication with people that live and work around pipelines is critical to dispelling myths and building trust. This responsibility is shared between the NEB and the companies it regulates.
In an effort to advance discussions on critical topics around safety and environmental protection, the Board held a Safety Forum this past June. During this event, a broad consensus emerged that:
- Industry must strengthen public trust in its ability to operate safely.
- A target of zero incidents is achievable but requires commitment to building and maintaining a culture of safety and implementing effective management systems.
- Corporate leaders are responsible for building and maintaining a culture of safety in their organizations.
- Transparency is a cornerstone of public trust and the public should be involved in identifying what information should be public.
- Safety must be defined broadly to include environmental protection and process safety, which focuses on preventing catastrophic incidents.
Changes in 2012
I will now move to the interplay between policy and regulation. The NEB is independent in terms of its decisions and recommendations. At the same time, it is connected to government in key ways. One is the NEB’s budget, which is set by the Government of Canada and affects the manner in which we pursue our mandate.
In 2012, the Government of Canada provided the NEB with an additional $13.5 million to hire staff to increase inspections by 50% to 150 and double the number of comprehensive audits to 6. From April 1, 2012 to March 31, 2013, we conducted 182 inspections, exceeding our target, and conducted the expected number of audits.
A more direct connection between policy and regulation is legislation that directly affects what we do and how we do it. The Jobs, Growth and Long-term Prosperity Act (often referred to as Bill C-38) was passed in 2012. It included several important provisions related to the NEB, notably:
- Setting a 15 month time limit for NEB review of a facility application. It should be noted that with the exception of the Mackenzie Gas Project, all NEB hearings in the eight years prior to 2012 were completed within 15 months.
- Amending the process for reviewing export and import licenses, including changing the requirement for hearings for some licensees. For exports, the Board can now only consider whether the quantity to be exported is surplus to reasonably foreseeable Canadian requirements, whereas previously the Board could consider any matter that it believed to be relevant.
- Requiring both approvals and denials by the Board on major facility applications to go to the Governor in Council (GiC) for a decision. Previously, NEB decisions to deny a project application were final and only NEB approvals were subject to a GiC decision.
- Providing the Board with authority to levy Administrative Monetary Penalties (AMPs), which can now be issued for violations related to safety and environmental protection. The maximum daily penalty is $25,000 per violation for individuals and $100,000 per violation for companies. Each day a violation continues is considered a separate violation, and penalties can be issued per infraction, per day with no maximum total penalty.
The NEB is diligently implementing these changes, and as an organization committed to continuous improvement, is doing so as efficiently and effectively as possible.
Proposed Future Changes
In June 2013, the Government of Canada announced its intention to introduce further changes to energy-related legislation. This commitment was reinforced in the October 2013 Speech from the Throne. The Government’s press releases from June 2013 provide a glimpse of what may be coming:
- Liability: Establishing the “polluter pay” principle in legislation and allowing governments to seek compensation for environmental damage from a spill. Companies operating major pipelines would need to have at least $1 billion in financial resources. In the Offshore Arctic and Atlantic, absolute liability would be raised to $1 billion and a deposit of at least $100 million (or participation in an industry-pooled fund of at least $250 million) would also be required.
- Transparency: Emergency and environmental information would be made more accessible to the public, including public release of emergency plans, safety plans, and environmental effects monitoring reports.
- Compliance and Enforcement: The NEB’s inspection powers, including the power to conduct a compliance audit, would be clarified, and our ability to use certain enforcement tools (e.g. AMPs) would be widened.
This is not an exhaustive list of what was mentioned last summer and we cannot speculate on what exact legislative changes Parliament may enact.
Regardless of what happens with the legislation, the next two years will be very busy for the NEB due to a major increase in industry activity. For example, whereas the Board conducted an average of 14 hearings per year over the last 5 years, this is forecast to increase to 27 hearings in 2013/14. Three major hearings may also happen concurrently in 2014/15:
- Trans-Mountain Expansion - application filed Dec 2013, hearings will be held before spring 2015;
- Energy East - project description expected in first half of 2014, application 3-6 months later; and
- Beaufort Sea Exploration Joint Venture - environmental assessment to begin in Q2 of 2014, applicant intends to file Drilling Program Authorization in Q4 of 2014.
In dealing with these and other files, the NEB and its 450 employees will continue to operate in our usual manner - with independence, balancing social, economic, and environmental considerations, and focusing on the full life-cycle of projects.
At the same time, we will also continue to adapt, whether this means responding to shifts in the Canadian public interest by increasing public access to safety information, or adjusting our processes and operations in order to implement legislative changes.
Thank you and I look forward to your questions.
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