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Home > Speeches and Presentations > Speeches and Presentations 2004 > Regulating Smarter at the NEB

Regulating Smarter at the NEB

Presented by
Deborah Emes
Board Member
National Energy Board

Canadian Institute of Energy

26 May 2004

Thank you so much for inviting me to speak to you today. It's always very flattering to be asked to speak and especially so to a body like yours.

In the past four and half years, the time I've been a Board Member, I have occasionally heard comments which indicate that, at least for some parties, the Board can be a bit of an unknown. For some parties, there is uncertainty as to exactly what is the Board's mandate. For others, there is uncertainty surrounding how we fulfill our mandate. And for still others, the uncertainty is not so much with how we do it, but why we do it. So after much thought, and some discussion with other Board Members, I decided that you might be interested in hearing about what I see as being the Board's role and responsibilities, how we carry it out, and, I expect, most interesting to you, the steps the Board is taking to continue to improve its performance and be a more effective regulator. I should note that the views I am expressing today are solely my own and do not necessarily represent those of the Board or any other individual Board Member.

NEB Mandate

In order to give my remarks context, I thought I'd begin by briefly outlining the mandate of the National Energy Board.

This slide shows seven separate areas of responsibility for the Board and illustrates the Board's mandate with respect to energy matters.

The primary thought that I would like you to take away from this slide is the breadth of the Board's mandate. In some cases, this mandate calls upon the Board to act in a quasi-judicial manner, for example when determining whether new pipeline facilities should be built or pipeline tolls should be varied. Other times, the Board's role is more administrative, for example in issuing natural gas export orders, where our commitment is to process the applications within two business days of receipt. And finally, as indicated by the last bullet, at times the Board's role is advisory, for example in the preparation of Energy Market Assessments or the relatively recent Energy Futures Report.

Gas Pipelines - Oil Pipelines

Listing the mandate of the Board is one way of describing the responsibilities of the NEB. However, I think that a better feel for the magnitude of the Board's responsibilities can be given through a few statistics.

First, the Board receives approximately 750 applications annually. While a good portion of these relate to export orders, and so are administrative, others - for example those related to the construction of facilities - require the Board to act in its quasi-judicial capacity. Last year, 5 certificates and 179 orders were made with respect to the construction and operation of facilities.

Second, about 45 000 km of international and interprovincial pipelines are subject to Board jurisdiction. In 2003, annual toll revenues for major pipelines regulated by the Board were $3.5 billion for gas pipelines and $838 million for oil pipelines. It may also be interesting to note that the regulation of all pipelines subject to Board jurisdiction requires the NEB to interact with over 100 separate companies (118).

Third, in 2003, the gross value of Board authorized energy exports totaled approximately $62 billion in revenue to Canada.

Implications of Mandate

Given the breadth of this mandate, it is imperative that the Board be focused Although there are currently 8 Board Members and approximately 300 staff, the large volume of work and the variety of responsibilities means that the Board must work efficiently and effectively to ensure that the public interest is protected but no resources are wasted.

This emphasis on effective and efficient regulation has always been a part of the Board's culture. However, two forces have acted to put even more emphasis on this way of acting. These are: a decision, taken in 1997, to implement focused and regular Strategic Planning at the Board, and the 'Smart Regulation' initiative announced by the Government in the September 2002 Speech from the Throne and re-affirmed in the most recent one.

In the 2002 speech, Smart Regulation was described as a "strategy to accelerate reforms in key areas to promote health and sustainability, to contribute to innovation and economic growth, and to reduce the administrative burden on business".

At the NEB, Smart Regulation means that we focus our efforts on critical areas, that we focus on outcomes and not processes, and that we ensure our regulatory actions add value for Canadians.

The question becomes: how exactly do we do this?

Elements of Effective Regulation

On this slide, I have listed what I believe to be the four necessary elements for smart, effective regulation. They are:

a clear statement of purpose and goals
clear strategies for achieving the purposes and goals;
actions that reflect the strategies; and
clear measures for assessing the effectiveness of the strategies and actions.

As I suggested earlier, at the NEB, this approach is embodied through our Strategic Planning Process.

NEB Purpose

The Board's purpose statement expresses in broad terms the Board's view of its role.

Ken Vollman, Chairman of the NEB, expounded on this role at the recent CAMPUT conference in Halifax. He stated that the regulator's role can be boiled down to two words: protect and enable. He suggested that protection involves such concepts as protection of the environment, protection of individual property, and protection of public safety while enabling implies providing a fair, efficient and effective regulatory framework in which socially desirable infrastructure, i.e. infrastructure found to be in the public interest, can proceed. In my view, both these concepts - protection and enabling - are embedded within the Board's statement of purpose.

NEB Goals

To further clarify its purpose, the Board has also set out five specific goals, listed on this slide.

These goals have become an integral part of the daily work of the Board. All proposed activities at the Board are scrutinized against the goals and activities that are not in line with the goals or can not demonstrate clearly how they will help the achievement of the goals are unlikely to be undertaken.

Given their importance to the Board, I am going to use the goals as my organizing framework.

Overarching Strategies

However, before getting into specifics by goal, I thought it might be useful to provide an overview slide listing the key overarching strategies that the NEB is using to provide effective and efficient regulation.

In their high level form, these strategies are not particularly new. For example, we formally started down the path of Goal-oriented Regulation with the implementation of the revised Onshore Pipeline Regulations in 1999. These regulations eliminated many prescriptive elements of the previous regulations and replaced them with clear expectations with respect to the outcomes the Board is seeking to promote.

Similarly, the first Section 58 streamlining order was issued in 1994. This order permits companies to undertake, without applying for Board approval, certain routine facilities projects that have insignificant environmental impact, occur on company property, and do not result in safety or third party concerns. The annual value of projects that have proceeded under this Order is in the order of $150 million and the cumulative value has been over ½ billion in the last four years.

However, as I discuss some of the specific activities being undertaken at the Board, I hope to show you that we are continually striving to implement these strategies in new, innovative, and intelligent ways that bring real results to Canadians.

Goal One

Although the primary role for ensuring the safety of an energy facility rests with the Company operating the facility, the NEB also plays a significant role This role begins when an application for a facility is filed, and assuming that it is approved, continues throughout its life. The Board does this by creating a regulatory framework that ensures that the safety risks associated with construction and operation of regulated facilities are identified and managed by pipeline companies.

Safety Regulatory Framework

Elements of the framework used by the Board to fulfill its safety mandate are listed on this slide. They include such activities as the development of regulations and guidelines, the assessment of proposed and monitoring of existing facilities, and the issuance of safety advisories.

Goal One - Strategies

Key Goal One strategies are listed on this slide.

First, the Board is reinforcing its commitment to goal-oriented regulation to improve industry's ownership of safety performance. It is actively promoting a broader understanding of goal oriented regulation, within and beyond the NEB, including the use of management systems by companies, to manage risks associated with facilities and activities. The Board is also pursuing the goal-oriented approach to regulation as it reviews and updates its regulations and guidelines, with input from stakeholders and interested parties.

Second, the Board is acting to provide the public with information on safety performance. The second edition of a new report entitled 'Focus on Safety' was published earlier this year and provides benchmark safety data for companies regulated by the NEB and companies regulated by other boards, such as the AEUB and FERC. In this upcoming year, the Board plans to complete a review of and adopt safety and security leading indicators.

Third, the Board is seeking to influence the development of safety related codes and standards. It is monitoring and reporting on the research and development of technological advancements and is raising awareness of new technology through meetings, partnerships, consultations and communication with industry. We are also building staff capability in pipeline integrity, northern energy development and offshore safety and security issues.

Goal One - Performance Measures

The Board has developed a number of performance measures to try to get a handle on the extent to which we are achieving Goal One. Some of these performance measures are high level, for example the first two listed on this slide, while other measures attempt to drill down further in order to gather information which will allow the Board to improve its work in this area.

Pipeline Ruptures, Incidents and Fatalities

One high level performance measure used by the Board is the number of pipeline ruptures and incidents per year. The NEB has an annual target of zero pipeline ruptures and I am happy to report that in 2003, this target was achieved. In addition, there were no fatalities or serious injuries. So far this year, the record is the same.

The NEB also tracks the extent to which companies comply with the conditions on facility approvals and the effectiveness of these conditions in meeting safety requirements. The Board uses this information to improve the clarity and effectiveness of conditions that it places on approvals and as information to inform other safety-related initiatives.

Goal Two

Goal 2 expresses the NEB's commitment to protect the environment and the rights of those affected by the construction and operation of regulated facilities and activities.

As with safety, the Board ensures that the environmental risks associated with the construction and operation of a regulated facility are identified and managed by the company.

Environmental Regulatory Framework

Elements of the Board's regulatory framework with respect to the environment are listed on this slide. As you can see, it is quite detail and runs from assessment of proposed projects, through the operation of existing facilities, to abandonment of facilities no longer necessary.

Goal Two - Strategies

Key Goal 2 strategies are listed on this slide.

Actions taken to reinforce goal-oriented regulation have already been discussed under safety.

Actions taken in response to the second strategy include: (i) the release of the new NEB Filing Manual, which is an updated version of the 1995 Guidelines for Filing Requirements, (ii) the holding of Education Seminars with the Canadian Energy Pipeline Association, (iii) the development and implementation of a structured risk management tool to identify and focus assessments on important environmental issues, and (iv) the development and implementation of an Environmental Screening Template to provide consistency and transparency in the format and approach to environmental screening reports prepared under the CEAA. All these initiatives act to promote efficient processes.

The third strategy is self-explanatory.

In response to the fourth strategy, the NEB is working with a number of regulatory agencies to ensure that environmental assessment and regulatory issues are dealt with in a coordinated manner. This is perhaps most evident in the North where the NEB is a signatory, along with 13 other regulatory agencies, to a co-ordination agreement related to a potential northern pipeline proposal.

We also partnered with the C-NSOPB to provide a single window review process for EnCana's offshore Deep Panuke project and have worked closely with the Canadian Environmental Assessment Agency with a view to improving the environmental assessment process.

More recently, the NEB has signed a Memorandum of Understanding with the FERC to enhance interagency co-operation and assist both parties to coordinate their responsibilities.

Goal Two - Performance Measures

As with Goal one, our environmental performance measures range from the high level, the first two shown on this slide, to those which drill down farther. You may also notice that two of them are similar to the measures used by the Board to measure our safety performance. This is not coincidental. We have noticed that actions that promote safety, frequently also promote environmental protection.

Achievement of Desired End Results for Environmental Conditions

For the environment, a key performance measure is the tracking of environmental conditions placed on approvals for compliance, their effectiveness in contributing to the goal of environmental protection and the achievement of desired end results. For projects approved in 2003, where information is available through inspections or post construction monitoring reports, 94.4 percent of environmental conditions were found to be effective in achieving their desired outcomes. Two conditions did not achieve their desired end result - one because of non-compliance on the part of the company and the other because of a lack of clarity in the written condition. This last provided a valuable learning for the Board.

Goal Three

The NEB's third corporate goal is to promote the benefits of economic efficiency in the energy sector. Goals one and two can be seen as relating primarily to the protection role of the regulator; however Goal 3, while incorporating elements of the protection role, particularly as it relates to consumers, also incorporates the regulator's enabling role. It is as part of Goal 3 that the regulator provides the fair, efficient and effective regulatory framework in which socially desirable infrastructure can proceed.

Economic Efficiency Regulatory Framework

The NEB has an impact on economic efficiency through three main actions.

First, through its regulatory decisions on applications for new facilities and for tolls and tariffs, the NEB promotes an efficient energy transportation infrastructure, i.e. one which meets the needs of infrastructure users and allows infrastructure owners to earn a fair return on their investment. Similarly, the Board ensures that Canadians have access to domestically produced energy on terms and conditions that are at least as favorable as those available to export buyers.

Second, the Board has an impact on economic efficiency through the information it provides via its Energy Market Assessment program and other technical reports.

Finally, the Board has an impact on economic efficiency through the efficiency and effectiveness of its regulatory processes. The NEB strives to provide the fastest possible turnaround time for applications that come before it, while still fulfilling its responsibility to protect the public interest. We recognize that the clarity, predictability with respect to process, and speed with which the regulatory regime operates are important considerations to companies making investment decision and that companies do have a choice as to where to invest.

Goal Three - Strategies

Key strategies associated with Goal 3 are listed on this slide.

A number on initiatives relating to the first strategy are underway at the Board. With respect to regulatory clarity, initiatives include the previously-mentioned new NEB Filing Manual and Education Seminars with CEPA. They also include the development of Guidance Notes for Pre-Application meetings. These meetings give project proponents a chance to meet with Board staff prior to submitting an application in order to understand what they need to do to prepare complete applications.

With respect to regulatory efficiency, the Board is planning a further review of its Section 58 Streamlining Order to see what else can be added. The NEB also plans to convene a technical workshop on effective and efficient regulatory approaches to achieve desirable public interest outcomes.

In addition, the Board has implemented a variety of process tools to improve how we do business. These include informal Information Requests, pre-hearing sessions where appropriate, technical meetings and conferences, and the ability to offer ADR.

With respect to predictability of the process, the Board has committed to implementing service standards that will apply to applications, thus creating increased certainty for applicants. For example, a service standard has recently been establish for our RFDs; 80 percent will be issued within 12 weeks of the end of a hearing.

With respect to the third strategy listed on this slide, as previously mentioned, the Board is working with a number of regulatory agencies to ensure that environmental assessments and regulatory issues are dealt with in a coordinated manner.

Goal Three - Performance Measures

Goal Three performance measures are continuing to evolve. While it is relatively easy to measure the efficiency of Board processes through such means as keeping track of cycle times, it is more difficult to measure whether Canadians are deriving the benefits of economic efficiency. To measure our success in achieving this goal, the Board looks for evidence that energy and transportation markets are working well.

Export vs AB Border Domestic Gas Price

From a consumer perspective, such evidence includes similarity in domestic and export prices for energy. The Board monitors to see that Canadians are paying no more domestically than the export price for an energy commodity.

Dawn - Alberta Basis vs TCPL Transportation and Fuel Cost

From a shipper perspective, it includes evidence that adequate transportation capacity for energy commodities exists. We monitor the basis, or commodity price differential between two markets, versus the toll for transportation from one market to the other. As long as the basis differential is less than the firm service toll, we can assume that there is adequate pipeline capacity between the two points.

It also includes evidence that shippers are satisfied with pipeline services. In consultation with both pipelines and shippers, we are working towards the development of a Board-sponsored shipper satisfaction survey, consisting of a standard set of questions that would be put to shippers on all major Board-regulated pipelines. It would also include questions on shipper satisfaction with the Board.

Finally, from a pipeline perspective, we track debt ratings and other financial measures to monitor the financial health of the companies we regulate.

Turning to cycle times, I would note that the Board is committed to working towards service standards that will apply to the average application. We won't ever be able to guarantee a cycle time for each and every specific application - there are too many variables, including the completeness of the application received. However, we will commit to a service standard that will apply to the majority of applications, thus creating increased certainty for applicants.

Goal Four

Those of you who surf the Board's Web site on a regular basis may have noticed that the wording of this goal has changed. It used to read "The NEB meets the evolving needs of the public to engage in NEB matters." It now reads "The NEB fulfills its mandate with the benefit of effective public engagement".

Effective Public Engagement

Initially, the Board's emphasis was on creating processes that allowed the public to easily engage in NEB matters. And when I tell you of the 22,000 letters of comments and 400 Interveners related to a recently decided application, I think you will agree that we were sucessful. However, the emphasis of the Board has now broadened to include effective engagement and not simply broad engagement. We want to ensure that parties engage in a manner that aids the Board in its decision-making function, i.e. helps the Board come to better decisions.

Goal Four - Strategies

Two key strategies associated with this goal are to tailor our communications to the particular audience we are trying to reach and look for ways to enable effective public engagement in Board matters.

Tailoring our communications to the particular audience we are trying to reach is of prime importance. For example, the information that a landowner, who has an existing pipeline running across his property needs, is different from the information needed by a person wishing to intervene in an oral public hearing to determine if a new facility should be built.

Hearing Process

Traditionally, communications from the Board have been in writing. And while we are clearly not abandoning the written word, we are looking at ways to supplement it. For example, in processes where the level of public interest has been high, the Board has held several public information sessions at which Board processes and requirements are explained. For example, with respect to the recent SE2 hearing, the Board held 9 days of public information sessions. In addition, where written documents are the best choice, we are examining ways of improving them, by writing them in plain language.

One new approach for the Board has been the creation of a video, available on CD and DVD, that explains the hearing process. The video combines actual footage from a hearing, along with staged vignettes covering things like objections to questions, so that people who are unfamiliar with the process can see what it is like before they have to appear. The DVD is free so if you would like a copy, call or e-mail the Board.

In addition, we are looking to enable effective public engagement simply by being more accessible. For example, for the past two years, we have invited a variety of stakeholders to the environmental scanning stage of our strategic planning process. In addition, when not constrained by matters before the Board, we have invited a wide spectrum of interested groups to meet with us informally throughout the year to discuss areas of common interest. Similarly, the Board has made various visits outside of Calgary, again to meet in an informal way, stakeholders who might only otherwise see us in the confined setting of the hearing room.

Finally, we are working to incorporate consultation in all of the work we do. For example, With respect to the Filing Manual, consultation occurred at several points, from the initiation of the project to the final draft.

Goal Four - Performance Measures

Currently, to determine how stakeholders feel about Board processes, we undertake post hearing surveys in which participants are asked a series of standard questions on what has occurred. We have used these results to improve our electronic filing and our hearing processes. As an aside, the surveys are done before the decision is released so that the results are not influenced by it, but Board Members and the staff assisting with the decision do not see the survey results until after the decision is released.

To determine how well we are meeting the information needs of Canadians, we have begun inserting reader comment cards in several Board publications to obtain feedback on the readability, relevance of the information and overall satisfaction with the Board's publication.

New goal four measures, the ones shown on this slide, will be developed over the coming year to reflect the change in the goal.

Aboriginal Engagement

One specific aspect of our engagement process relates to Aboriginal Engagement. We are working to develop and maintain an understanding of the evolving participation and communication needs of Aboriginal peoples potentially affected by our decisions and to reflect this understanding in program improvements.

As part of this process, we are working to raise our internal capacity for understanding issues through the development of a data base of community profiles and information and through cultural awareness training. We are looking to take part in more informal meetings and community presentations and to develop tools which will facilitate the sharing of information.

Goal Five

In 2003, a fifth corporate goal was added to highlight the NEB's commitment to prudent management of resources. It provides a focus for accountability, leading to effectiveness and efficiency of leadership and management across all NEB goals.

Goal Five - Strategies

Specific strategies associated with this goal are to strengthen the NEB's governance and management and to strengthen the NEB's capacity to deal with emerging issues. As part of this strategy, we are currently building and implementing a Management System Framework at the Board. The Board encourages regulated companies to have management systems and programs in place and we want to set an example by walking our talk.

In order to measure the NEB's performance with respect to Goal 5, the Board is developing and refining performance measures related to the effective leadership of its people and management of its resources.

Conclusions

I have presented a fair amount of detailed information in this talk, not all of which I would expect any of you to remember.

However the messages I would like you to take away are the following.

First, the mandate of the NEB is broad. It ranges from the administrative to the quasi-judicial to the advisory.

Second, this mandate requires the Board to perform two functions. These are to protect the public interest against such things as unacceptable environmental degradation, unacceptable impacts on individuals and unacceptable lack of safety, while at the same time enabling a system that allows socially desirable infrastructure to be built.

Finally, the Board is striving to fulfill its mandate effectively and efficiently for the benefit of all Canadians.