A Regulator's Perspective of the Challenges Facing the Pipeline Industry

Elizabeth Quarshie
Board Member
National Energy Board

Presentation at the PCRI Board Meeting

9 August 2004

Good Afternoon (Ladies and Gentlemen)

Thank you Mr. Moderator for that kind introduction.

I am very pleased to be able to be here today. PRCI is recognized around the world as a leader in pipeline research.

As a regulator, we rely heavily on the work that organizations such as yours, carry out and publish on behalf of their members. New pipeline technologies are constantly being developed and introduced at an unprecedented pace. (Certainly at a rate that far exceeds the pace of formal regulatory or code changes.)

Comprehensive research, coupled with a thorough peer review process, is essential in bringing these technologies from concept, through proof of principle, to actual use within the pipeline industry.

Outline

My talk will be quite brief. Many of you are familiar with the National Energy Board's (NEB) role and jurisdiction. Just to refresh your memory, I will show a few introductory slides. I would also be glad to discuss the Board's role and activities with you, any time after this session.

I thought I would speak to you briefly about what we perceive to be the Regulator's Role. Particularly, I want to focus on the challenge we face in our role as an enabler and protector; twin precepts that derive from the Canadian Federal Government's Initiative on Smart Regulation.

I will spend a little time talking about some of the ways the Board is attempting to provide an enabling environment which will create a less complex regulatory structure and bring greater clarity and certainty to our regulatory processes for all stakeholders. I will be addressing some of the issues we face in creating an enabling regulatory structure.

Under the heading of "Protecting", I will share with you what we are doing at the Board to protect property and the environment and to ensure that people are safe during the entire pipeline lifecycle. I will discuss some of the more important challenges and issues facing us as we work towards an enabling regulatory environment that also ensures protection of people, property and the environment. Finally, I want to discuss some of the more immediate challenges we face as a regulator.

National Energy Board

The National Energy Board is an independent federal regulatory agency that was established in 1959 by Act of Parliament. You will notice that it has a broad mandate, in essence regulating inter provincial and international oil and gas pipelines and international power lines. In addition the Board has oversight of Frontier oil and gas activities.

Another important part of the Board's mandate is to provide advice on energy matters to the Minister of Natural Resources (NRCan)

The Board operates as a court of record, very similar to a civil court. Its powers include the swearing in and examination of witnesses and the taking of evidence at a Hearing. Individuals, interest groups, companies and other organizations are given an opportunity to register as interveners or interested parties in the hearing and in this way actively participate in the process.

NEB Regulated Pipelines

Currently the Board regulates approximately 45000 km of oil, gas and commodity pipelines.

The Regulator's Role

The purpose of the NEB is to promote safety, environmental protection and economic efficiency in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade.

(So for our American visitors you will notice that the NEB mandate is roughly comparable to that of FERC and the Office of Pipeline Safety).

The Board deals with approximately 750 applications annually. For major applications, the Board holds public hearings which can be either written or oral proceedings and are usually held at locations across Canada where there is a particular interest in the application and which will be most affected by the Board's decision. Normally, a panel consisting of three Board Members is assigned to hear applications.

The Regulator's Role (cont'd)

So much for the short Introduction of the NEB. Now on to my address! We need energy to heat our homes, power our appliances, move us around, and to manufacture products.

Infrastructure is necessary to produce and transport energy to where it is needed.

Clear regulatory processes are essential to enable the necessary investments to take place.

The Board's role is to provide both an enabling and protective regulatory environment that suits the needs of Canadians. This environment ensures that proponents of pipeline projects understand the role of the Board in assessing project applications as well as providing predictability, (regulatory certainty) with respect to timelines and the regulatory process.

I shall return to this later, but first it will be useful to consider a relatively recent federal Government initiative to reduce the regulatory burden.

Smart Regulation

In 2003, in outlining its policy agenda, the Federal Government discussed smart regulation to further outcomes in the public interest. But what does that mean?

In effect the government's consultation draft on smart regulation says that enabling and protecting: "involves using the regulatory system to generate social and environmental benefits while enhancing the conditions for a competitive and innovative economy that will attract investment and skilled workers and sustain a high quality of life for Canadians. It is about making regulation as effective as possible"

and making sure it is never more complicated or costly than it has to be."

The Regulator's Role
- Enabling and Protecting

An enabling environment meets the needs of stakeholders for involvement, information, clarity and regulatory transparency. It means creating predictable timelines and meeting them through appropriate service standards, so that projects in the public interest can proceed in a timely manner.

The Board also has the role of ensuring that the design, construction, operation and abandonment of pipelines is managed in a manner which ensures the protection of property and the environment as well as the safety of persons.

In addition Protection also has an economic component, that is, protecting shippers interests, while being fair to investors.

Enabling - Reducing Complexity

The complexity of the regulatory structure surrounding pipeline projects has grown dramatically during the past 20 years. Today, we are faced with multiple and sometimes overlapping jurisdictions, environmental assessments and comprehensive studies, and numerous other complexities which sometimes appear to have the net effect of strangling a project.

The Board is doing what it can to overcome this complexity through initiatives such as pre application meetings for proponents; information sessions so that people know what to expect at a hearing; living guidance documents, and the further development of goal oriented regulations, which I shall comment upon later.

Enabling - Public Confidence and Trust

A further aspect of enabling lies in ensuring public confidence and trust.

The Board achieves this through meeting its 5 goals:

Protecting - Goal Oriented Regulation

A key protection strategy the Board employs is goal-oriented regulation (GOR). Regulations fall within a broad spectrum ranging from the prescriptive, where the regulator sets out methods for the operator and inspects for compliance, to performance-based, where the regulator sets the outcomes to be achieved and the operator designs systems to achieve those outcomes and demonstrates this to the regulator. The Board's goal-oriented regulation concept is a hybrid of prescriptive and performance-based elements, providing clear and concise direction while allowing the operator flexibility to adapt to changing conditions and make use of new technologies.

The Board has two sets of goal-oriented regulations currently in place, the Onshore Pipeline Regulations brought into force in 1999 and the Processing Plant Regulations which came into effect in 2003. Both regulations require operators to put in place various management systems to achieve the safety and environmental protection goals set out in the regulations. Each company will devise systems to achieve those goals in ways that fits its particular circumstances. The Board regularly assesses these systems' compliance through an inspection and audit program and makes recommendations for improvement.

The result should be a combination of superior safety and environmental protection performance stemming from systems that are designed to best suit each individual operator's situation.

The Board is continuing the development of goal-oriented regulations with the Damage Prevention Regulations which should be promulgated sometime in 2005-2006.

Protecting - Integrity Management

One of the key goal-oriented elements of the Onshore Pipeline Regulations is the requirement for all companies to have an Integrity Management Program. This requirement has since been incorporated within the Canadian Pipeline Standard (CSA Z662). The Office of Pipeline Safety in the US has adopted a similar approach in recent rule makings for hazardous liquid and gas transmission pipelines in high consequence areas.

Despite similar goals, we have taken a different approach than our US neighbours. Under our regulations the operator is free to devise his integrity program structure, content and format in a way that best fits his situation. Let there be no mistake, this is not hands off regulation. Instead, we rely on periodic inspection and audits to evaluate and verify the adequacy and effectiveness of company Integrity Management Programs. To date 28 audits have been conducted.

In addition, we have provided companies with detailed guidance as to what should be addressed within a comprehensive Integrity Management Program. Not surprisingly, when we compare our non-mandatory guidance notes with the US rules, the differences are slight.

We are also working closely with industry in the development of meaningful performance indicators which will ultimately be used to benchmark performance levels. Ultimately, effective performance measures will allow us to more effectively apply our resources as a regulator.

In today's world, regulators do not and can not work in isolation. As such, we signed an MOU with FERC earlier this year and are working towards the development of a MOU with the US Office of Pipeline Safety which would allow us to more freely share information and resources in the interests of our common stakeholders.

Protecting - Knowledge Transfer

The transfer of knowledge between all stakeholders is essential to the continued safe design, construction, operation and abandonment of pipelines. Industry meets regularly through various fora to share advancements and knowledge on formal and informal bases. Regulators meet with stakeholders through formal hearing processes and through informal involvement in various industry working groups on subjects of common interest. There are many more examples I could list.

The interaction between stakeholders needs to be continuous and broadened to ensure that everyone who needs, or wants, to be involved in the pipeline lifecycle has an appropriate and effective opportunity to contribute. The Board has begun holding workshops with technical stakeholders on an 18 month rotational basis. Our next workshop will be in the spring 2005. These workshops provide an opportunity for the NEB to describe the purpose and intent of its processes as well as receive Industry feed back upon their efficacy.

The sharing of knowledge through events such as the International Pipeline Conference (IPC) (which is being held in Calgary this October) plays a key role in the advancement of new technologies and ultimately leads to safer pipelines. As such, the Board is pleased to co-sponsor with OPS two tracks at IPC this Fall on Codes and Standards and on Risk and Reliability. Board staff are active in both the various committee structures of the CSA, assisting code development, and in appropriate professional societies to develop conference program content.

Protecting Issues - Knowledge Transfer

There are a number of issues pertaining to knowledge transfer that we face as a regulator.

New technologies are often developed through investments made by individual companies or industry groups. These investments are understandably made in the hope that the research outputs will provide value and benefit to their own operations. As such, companies generally choose to keep the results of this work to themselves for some period of time before sharing it with a broader audience.

As a regulator, we recognize the need for commercial confidence. However as a Tribunal dependent upon assessing the evidence placed before it, ways must be found to share the results of research. Otherwise how can one evaluate and approve the work without recourse to its provenance? Without full disclosure or access, the decision to accept or allow new technologies is made considerably more difficult if not impossible.

While perhaps difficult to achieve, a balance is necessary to ensure that information is shared appropriately.

Challenges

I will turn now to some more immediate technical challenges facing us as a regulator and where we would benefit from research.

First, here are two environmental issues that arise frequently in the design and regulatory assessment of energy corridors.

ROW design may need to be optimized for different landscapes. For example, how should utility right-of-ways best be incorporated into residential, agricultural or forested landscapes? Research needs relate to R.O.W. layout, vegetation reclamation standards, and desirable habitat features.

Geotechnical restoration remains a common practical design challenge with environmental and integrity implications. Issues are site- and landscape-specific, and include such phenomena as:

Challenges (cont'd)

The problems facing an aging infrastructure continue to challenge us. Better quality control and current design and construction practices yield pipelines that are intrinsically safer than much of the past infrastructure. What needs to be done to ensure that pipelines are safe? How can we determine if an older pipeline is safe enough?

Enhanced In Line Inspection ( ILI) capabilities are developing quite quickly particularly the ability to characterize and size anomalies. Improvements in tool accuracy should help reduce expensive confirmatory digs. In this regard organizations such as PRCI could play a role in the assessment of tool advances.

Planned northern projects will require workers to work long hours under severe conditions and low light. Ensuring and maintaining safety under these circumstances for large numbers of workers will be a challenge.

Construction in harsh environments yields challenges other than worker safety. Strain based design and novel construction methods applied to trenching, welding and inspection are needed to expand the pipeline infrastructure into the new areas of supply. We need to be ready and able to assess these new techniques as they are developed.

Our current infrastructure is designed to move energy from the western Canadian sedimentary basin to remote markets. Conventional supply in that area and new sources coming on in eastern Canada and the north, creates the need for some major capital expansions. How can we stimulate investment while attempting to keep energy costs reasonable for all users?

Pipeline abandonment is a potential issue on the horizon although considerable efforts have been made to study the financial and legal liability aspects of abandonment. There is much work yet to be done on the technical issues surrounding abandonment.

Challenges (cont'd)

The regulatory structure in the areas of new supply are much more complex resulting in considerably different and increased numbers of approval requirements. This in turn may lead to lengthy review and approval times. This must be managed effectively and simplified where ever possible.

Increasingly, we are challenged by the public at large to ensure they have ample opportunity to participate in Board decisions. How can the Board manage this increased demand to be heard while attempting to create an enabling environment for new projects?

Land for pipeline construction is increasingly difficult to obtain. In addition, the rights of way that we do have are being pressured by development and competing land uses. The Board and its stakeholders are trying to manage these issues.

The Crown has a fiduciary duty to ensure that aboriginals are adequately consulted on all projects. This is a challenge for new projects.

Last but certainly not least, Environmental protection legislation continues to evolve on a regular basis. How can companies manage their activities to ensure currency and compliance with the various agencies? *

* The Supreme Court of Canada has subsequently ruled in Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, that rather than arising from a fiduciary duty, "The government's duty to consult with Aboriginal peoples and accommodate their interests is grounded in the honour of the Crown."

Thank You!

I hope this presentation has been informative and that it will provoke some thought and discussion. You can see that we have our work cut out for us as we face the challenges I have outlined!

In closing, I want to thank you again for this opportunity. I look forward to the upcoming discussion.

Thank you.