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Home > Speeches and Presentations > Speeches and Presentations 2006 > Legal Framework and Regulatory Process in Canada - Federal Government and Eastern Canadian Provinces

Legal Framework and Regulatory Process in Canada - Federal Government and Eastern Canadian Provinces

30^th New England Governors -
Eastern Canadian Premiers Conference
Newport, RI
May 11-13th, 2006

Gaétan Caron
Vice-Chairman
National Energy Board

Legal Framework and Regulatory Process in Canada - Federal Government and Eastern Canadian Provinces

Effective energy regulation is an essential component of a prosperous energy sector and the responsible development of our energy resources.

Of all the challenges we face in finding energy solutions, the most critical in my view is adequacy of infrastructure. Most energy infrastructure projects must go through some sort of regulatory process, at the local, state, provincial or federal level. Responsible development requires clear rules of the game for parties who have an interest in infrastructures, including our citizens, governments, environmental organizations, and proponents.

One of the desired end results of regulation is the making of decisions in the public interest. As an example of what is meant by the words "public interest", I am offering for illustrative purposes the one we have adopted at the National Energy Board.

Public Interest

I would like to emphasize the last three words, « make a decision ». In my view, we must re-learn as a society, in part through our regulatory processes, to be decisive. Among the energy options we have every day, the option of deferring a decision can be a very costly one. The prosperity we enjoy today is due in part to difficult decisions made in the past. The prosperity of our near-term and long-term future depends on our ability to make decisions now. I think we can re-learn to make decisions, following meaningful and thorough consultations, in a more effective way. Many of our decision-making processes have become too fragmented, and we need to "defragment" them.

Among the reasons why we need a decision-making process which is decisive, albeit not the only one, there is the need for investors to know the rules of the game. Knowing in advance how things will work, and how long it will take to get a « yes » or a « no », is among the most important factors an investor looks at before deciding to invest or not. For the other participants in the regulatory process also, knowing how things will work is very helpful in devising their strategies to learn about a project and to decide to support or oppose a project.

Every day, the regulators in Eastern Canada and the National Energy Board find new ways to improve the process. Some times a regulator will find a way to improve its own business, but very often as well it is through our joint efforts and through dialogue and joint action that we find better ways to regulate and make decisions. Who are these regulators?

The Energy Regulatory Family in Eastern Canada

I am using the word "family" because we do not work in isolation and there are many things we share. Ongoing discussions occur at many levels, notably through the many committees and activities of the Canadian Association of Members of Public Utilities Tribunals (CAMPUT), the Canadian equivalent to the National Association of Regulatory Utility Commissioners (NARUC), with whom we also work.

The extended regulatory family includes...

Often, the regulatory process works in interaction with the environmental assessment process. Two of the agencies operating in Eastern Canada are identified here, and there are undoubtedly many others.

Many projects also cross the international border. As a result, there is an ongoing Canada-US dialogue among regulators, in part through CAMPUT, and also through formal agreements such as the memorandum of understanding between the FERC and the NEB.

The existence of these many agencies clearly is an asset for our citizens. It has often been said that quality of life for citizens depend a lot on the quality of their public institutions. Energy regulation agencies are a case in point. They are all staffed by hard-working, dedicated and knowledgeable people. Many of these agencies are quasi-judicial in their nature, which means in practice they work independently and are bound by strict rules of procedural fairness and natural justice. They have been designed so that tough and controversial decisions can be made outside of the political domain, allowing elected officials to focus on policy while regulators, through their enabling legislation, sweat the details of policy implementation.

At the same time, the growing number of these agencies, and the creation of environmental assessment bodies whose purpose is to make recommendations on the environmental aspects of projects, is creating interesting challenges. In the next few slides, I am providing a few examples, relevant to Eastern Canada, and one example in the North, illustrating these challenges and how we solved the problem of several agencies having a role to play in a major project.

Joint Review Panel - Sable Gas Projects

The first example is that of the Sable Gas Project. In this case, there were several organizations with an interest in at least some aspects of the project. The NEB was one of them, and so was the Canada Nova Scotia Offshore Petroleum Board (CNSOPB), a good example, like the Canada-Newfoundland and Labrador Offshore Petroleum Board, where the federal government and the provincial government are working in partnership in the offshore. There were also at least three provincial entities with an interest. The end result could have been five or more hearings. However, thanks to the goodwill of all involved, the parties found, within existing legislation and regulations, the means to do the job under one process. Essentially, we had people on the five-member panel cross-appointed under the various pieces of relevant legislation. The governments themselves were winners in this, so was the applicant, and the intervenors, serving, in my view, the public interest very well. The project has been flowing gas for several years now and is a vital element of the Canadian and North American energy grid.

Deep Panuke

Another example was the planning for a hearing which in fact did not take place, due to the application not being filed, but for which we were entirely ready. This was the Deep Panuke project, which was about developing other natural gas resources offshore Nova Scotia. The potential here again existed for at least two hearings, but we agreed instead on an arrangement where a commissioner of the CNSOPB and a single NEB Board member would hear the case, and refer the cases to their respective organizations afterwards for their decisions.

Joint Review Panel Process

The solution here looked like this.

While people of goodwill among our regulatory agencies do find solutions within the existing legal and regulatory framework, the solutions sometimes can get somewhat complicated and, as a result, subject to process risks and uncertainty.

Northern Pipelines

Another example of creative solutions is that of Northern pipelines. This map shows some of the most talked about projects in the North: to the left, you see the pipeline proposed to be built to bring Alaska Gas to North American markets. To the right, you have the proposed Mackenzie Gas Project, which is currently being heard by the NEB and a Joint Review Panel focusing on the environmental and socio-economic aspects.

Cooperation Plan

In the case of the Mackenzie Gas Project, there were 14 government organizations who signed a cooperation plan to conduct two parallel process for its public review. Each has a legitimate role to play in the process. Several of the institutions involved were created by a specific piece of legislation, many of them as a result of a land claim agreement with Aboriginal peoples.

Mackenzie Gas Project Process

This is a simplified diagram that shows how the process is working among the various players.

Various processes

For us, practitioners of regulation, or the specialists, consultants and lawyers who work in interaction with the regulatory process, the complexities of regulation are part of life, and we can cope quite well.

There is a different reality, however, for the intervenors, for citizens wishing to engage in the public debate around a project, and for investors and proponents. The solutions we have found to the public review of a past project do not necessarily apply to a future project. You can see in the three examples provided that the solutions are very different. For future projects, people are uncertain on how this is going to work, They are uncertain how long it is going to take. They are unclear on who is deciding, versus advising or recommending. Decision-making is becoming fragmented. This introduces uncertainty. As a society, we face the risk of gradually losing our ability to be decisive. This could be costly in terms of energy solution, and in terms of our economic, social and environmental prosperity.

For proponents of energy projects in particular, process and timing uncertainty can be a very significant disincentive to invest. I have often head business people say: "OK the process is not perfect, but as long as I know how it will work and how long it will take, I can live with it".

Elements of solution

With the proper focus, I am confident that elements of solution exist, and that some are being implemented as we speak.

As I have indicated earlier, your regulators and agencies do work very hard to make existing legislation and regulatory make sense. Improvements to these processes occur every day, and will continue to occur. But my advice is that as a society we need to go beyond fine tuning, and pursue more ambitious opportunities that involve legislative or executive action.

Here are some examples.

Quebec's New Energy Strategy

Last Thursday, Premier Charest announced Quebec's new energy strategy. Among the action to be taken, there is a desire to modernize the legislative and regulatory framework in the energy sector. In practice, this includes making more clear the role of the Régie de l'énergie (Québec Energy Board) in assessing the energy and economic justification for energy projects, and correspondingly making more clear as well the environmental mandate of the Bureau d'audiences publiques sur l'environnement (Environmental Public Hearings Commission).

Brunswick Pipeline Project

Another example is the decision also announced last Thursday that the proposed Brunswick pipeline in New Brunswick, to carry natural gas from the an LNG plant near Saint John, New Brunswick to the US, would be subject to a pilot project. Under the pilot, the NEB process will substitute for an environmental assessment by a review panel under the Canadian Environmental Assessment Act. This is an example of executive action taken under existing legislation.

Lead Agency

The last example I will provide is the concept of lead agency, implemented in the US in a recent energy bill. The FERC has been designated, in certain types of applications, as lead agency. The primary objective of the concept is to encourage the concurrent review and to minimize the duplication of process and thereby shorten the cumulative processing time in evaluating applications and making permitting decisions for interstate natural gas pipeline projects. This also brings certainty to the process, including timing, without fettering the discretion of any of the agencies involved. To my knowledge, this concept has not been tried in Canada yet, at least not in the federal domain, and I would like to see it tried.

The Way Forward

In conclusion, I would encourage policy makers and elected officials to continue to pursue opportunities for improved regulatory processes that more clearly define how the regulatory process will work and how long it will take to be completed. I hope this short presentation gave you some food for thought that may help you identify ideas more specifically applicable to your area or to the region.

Legal Framework and Regulatory Process in Canada
Federal Government and
Eastern Canadian Provinces

by: Gaétan Caron
Vice-Chairman
National Energy Board

Effective energy regulation is an essential component of a prosperous energy sector and the responsible development of our energy resources.

Every day, the regulators in Eastern Canada and the National Energy Board find new ways to improve the process. Sometimes a regulator will find a way to improve its own business, but very often as well it is through our joint efforts and through dialogue and joint action that we find better ways to regulate and make decisions.

The growing number of regulatory agencies, and the creation of environmental assessment bodies whose purpose is to make recommendations on the environmental aspects of projects, is creating interesting challenges.

The presentation provides a few examples, relevant to Eastern Canada, and one example in the North, illustrating these challenges and how to date we have solved the problem of several agencies having a role to play in the assessment of major energy projects.

With the proper focus, more effective elements of solution can be found, and some are being implemented as we speak. Regulators and agencies do work very hard to make existing legislation and regulatory make sense. Improvements to these processes occur every day, and will continue to occur. But we need to go beyond fine tuning, and pursue more ambitious opportunities that involve legislative or executive action. Examples of these opportunities are provided in the presentation.

In conclusion, policy makers and elected officials are encouraged to continue to pursue opportunities for improved regulatory processes that more clearly define how the process will work and how long it will take to be completed. It is hoped that this short presentation may give participants some food for thought that may help them identify ideas more specifically applicable to their area or to the region