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National Energy Board Update [PDF 62 KB]

National Energy Board Update
Gaétan Caron, Chair and CEO

Canadian Energy Summit 2013
November 8, 2013

Introduction

I am pleased to be here today to provide an update on the National Energy Board.

Before I begin, I would like to take this opportunity to recognize the organizers and hosts of this event: The Economic Club of Canada and the Calgary Petroleum Club. I congratulate them on their efforts and success in putting together an interesting and impressive agenda.

My comments today are fairly general and I will also leave time at the end for questions.

  • For those of you unfamiliar with the NEB, I will start by briefly describing the Board’s role and activities. To avoid any confusion, I will clarify a few key points in terms of what we do and how we do it.
  • Next, I will identify the Board’s three current organizational priorities and then outline new initiatives and developments within each area.

My overall message today is that the Canadian public interest with regard to energy issues is changing and that the Board continues to evolve and adapt in response. We believe “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.”

That said, some of the key traits for which the NEB is known – independence, market-orientation, fairness, and professionalism, as well as a commitment to safety and the environment – have not changed and will continue to characterize our work.

NEB’s Role and Activities

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 across Canada. In 2012, these pipelines shipped approximately $106.3 billion worth of crude oil, petroleum products, natural gas liquids and natural gas to customers at an estimated transportation cost of $6.9 billion.
  • In 2012, the NEB conducted 253 compliance activities related to security, public safety, and environmental protection. This included inspections, emergency exercises, emergency procedures manual reviews, compliance meetings, audits, and reviews of reports.
  • Each year, the Board receives approximately 260 applications for pipeline/power line-related facilities and tolls, and 440 applications for export/import licenses.

But these figures are only part of the story. It is also important to recognize that there has been a shift 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 some of the new initiatives that I will discuss shortly are part of the Board’s response. Before doing this, however, I want to emphasize that not everything at the NEB is new or changing.

First, the Board is and has always been an independent, quasi-judicial, regulatory tribunal. The Board operates within the mandate set for it 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 and regulation.

Second, the NEB’s approach to regulation continues to be premised on the belief that markets work. The Board can step in if, for some reason, markets are not functioning properly, but we believe that well-functioning, competitive markets efficiently balance supply and demand through adjustments in prices. They also lead to competitive, innovative, and robust energy systems.

Third, when assessing applications to build facilities and installations, the NEB continues to conduct fair and comprehensive evaluations which consider all relevant information presented, including information related to:

  • Design and safety;
  • Environmental protection;
  • Socio-economic matters;
  • Impact on Aboriginal interests;
  • Impact on landowners and others;
  • Economic feasibility; and
  • Any other public interest that may be affected.

Fourth, the NEB’s 400 employees and Board members take their mandate very seriously. Any of you that have worked with NEB staff in the past know the professionalism and dedication with which they approach their jobs. This has not changed, and stakeholders can continue to expect us to be credible and effective.

NEB Priorities

Within the broader context just described, the Board has identified three specific organizational priorities:

  • Continuous improvement of safety and environmental outcomes;
  • A robust regulatory framework for the North; and
  • Being a flexible and efficient organization able to meet new/ongoing priorities.

I will now describe these three priorities in more detail and some new initiatives and developments associated with each one.

Priority 1: Continuous Improvement of Safety and Environmental Outcomes

Through the NEB Act, Parliament has entrusted the NEB with the authority to decide whether a company is operating safely. It is the Board’s duty to err on the side of caution and it will revoke authorizations, impose safety orders that restrict operations, issue stop-work orders or monetary penalties, and pursue criminal prosecution when warranted.  The Board requires everyone to follow NEB rules and regulations so that the safety of Canadians and the environment are protected.

In pursuit of this mandate, 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.

In addition, Administrative Monetary Penalties (AMPs) came into force on July 3 of this year. The NEB can now impose AMPs on companies or individuals for non-compliance with the NEB Act, its regulations, any orders or decisions, or any term or condition of any certificate, permit, license, leave or exemption.

  • For individuals, the maximum daily penalty is $25,000 for each violation, and for companies the maximum daily penalty is $100,000 per violation.
  • The Act stipulates that each day a violation continues is considered to be a separate violation. This means that separate penalties could be issued per infraction, per day with no maximum total penalty.

The Board is also working with stakeholders to address safety and environmental issues. On June 5-6, 2013, the Board held a Safety Forum in Calgary to identify opportunities for industry and regulators to improve safety. During this event, a broad consensus emerged that:

  • Industry has lost and must earn back 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.

Fundamentally, safety and environmental regulation has to be strong – and be perceived as strong – for markets to function effectively. Companies cannot operate at maximum commercial capacity if there is any question about the integrity of their systems. Companies also need a strong regulatory environment that sets clear rules and expectations in order for them to strategize, invest, and grow.

As mentioned, there has also been increasing interest from the public, media and other stakeholders in NEB proceedings as well as our compliance and enforcement activities. Correspondingly, the Board continues to improve transparency through:

  • Working to ensure that the data we provide continues to be accurate, timely and in a format that is easily accessible to interested parties;
  • A commitment (reinforced at the Safety Forum) to provide more information on safety and environmental performance; and
  • Redoubled efforts to build knowledge and public awareness by improving the regulatory and industry information available to Canadians.

Along those lines, I believe it would be helpful – and more efficient – for industry to provide some of this information themselves: not a public relations campaign, but important information about integrity and environmental protection that Canadians increasingly want to access. Appropriate, meaningful, and well-timed communication with people that live and work around pipelines is particularly critical.

We recognize that there are precautions about providing proprietary information or admitting issues and challenges, but more information needs to be shared with the public than has been the practice in the past. Providing this information contributes to development of industry-wide best practices and is important to dispel myths. We have also seen in other sectors, such as the chemical industry, that releasing information on safety and emergency planning can increase public understanding and trust.

Priority 2: Robust Regulatory Framework for the North

In 2011, the NEB conducted a comprehensive review that resulted in the development of filing requirements for offshore drilling in the Canadian Arctic (the Arctic Review). During the Arctic Review, the NEB committed to strengthening its regulatory framework for the North to ensure that future decisions on applications will address the safety of workers and the public as well as protection of the environment.

This year alone, our staff and Board Members held over 50 meetings across the North to continue to listen to those who will be most affected by oil and gas activities. Since my presentation here a year ago, I have personally made 4 trips to the North, including:

  • The first-ever Board meeting in Inuvik and the signing of an MOU with the Mackenzie Valley Land and Water Board in Yellowknife (February 2013)
  • Visiting all six communities in the Beaufort-Delta region: Inuvik, Tuktoyaktuk, Aklavik, Paulatuk, Ulukhaktok, and Sachs Harbour (April 2013)
  • Additional visit to the Beaufort-Delta region (July 2013)
  • Baffin Region tour with Board Members (September 2013)

These visits confirmed for me the collective responsibility we share—as regulators, governments, and industry—to ensure that the highest standards of safety and environmental protection are applied to oil and gas exploration and development.

The robustness of the NEB’s regulatory framework for the North hinges on:

  • Clear and effective processes (i.e. proceeding with the NEB’s commitments related to the Arctic Review);
  • Meaningful engagement (i.e. developing trust and credibility among Northerners and Northern institutions through continued engagement);
  • Clear expectations of companies (e.g. through development of guidance); and
  • Enforcement and compliance verification mechanisms to promote safety and protect the environment (e.g. standardizing oversight tools).

The NEB is also working to continuously improve Northern-related regulation:

  • In May 2013, the Board released Draft Financial Viability and Financial Responsibility Guidelines. These describe what applicants must do in order to demonstrate that they have the financial resources to conduct their proposed activities safely and address a ‘Worst Case Scenario’.
  • In September 2013, the Board released Filing Requirements for Onshore Drilling Operations Involving Hydraulic Fracturing. These included provisions addressing hydraulic fracturing related to onshore drilling and production in the North.
  • The Board is currently developing new Filing Requirements for Geophysical Operations. These will specify the information needed to support an application for geophysical, geological or geotechnical operations and seabed surveys.

Priority 3: Flexible and Efficient Organization Able to Meet New and Ongoing Priorities

In order for it to meet this organizational priority, the Board is working to:

  • Implement process and technological efficiencies (e.g. improvements to the Online Application System and Application to Participate Form);
  • Leverage multi-stakeholder advisory committees (e.g. Land Matters Group); and
  • Adhere to amendments to the NEB Act that put a 15 month maximum time limit on the review of facility applications.

Obtaining and managing the resources needed to conduct this and other work will be an ongoing challenge, a task compounded by increases in industry activity:

  • Facility applications are expected to increase from an average of 23 applications per year over the past four years to 40 applications in 2013/14.
  • Over the past 5 years, the Board conducted an average of 14 hearings per year. For 2013-14, this is forecast to increase to 27 hearings.

Three major hearings may happen concurrently in 2014/15:

  • Trans-Mountain Expansion – Project Description (PD) filed May 2013, application expected Dec 2013, hearings (if held) must be before spring 2015;
  • Energy East – PD expected in first half of 2014, application 3-6 months later; and
  • Beaufort Sea Exploration Joint Venture – PD filed Sept 2013 to Environmental Impact Screening Committee (EISC); in Q2 of 2014, the NEB, in coordination with the Environmental Impact Review Board (EIRB), will commence its CEAA 2012 assessment using the Applicant’s EISC submission; Applicant intends to file its application for a Drilling Program Authorization in Q4 of 2014.

Closing Remarks

As you can see, this is a busy time for the Board. The energy industry is highly dynamic and we are working hard to adapt and evolve as effectively and efficiently as possible.

At the same time, our core characteristics remain consistent. We continue to regulate in the public interest, which includes a staunch commitment to safety and the environment, and in a manner that is independent, market-oriented, fair, and professional.

Thank you and I hope you enjoy the rest of the Energy Summit.

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