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Home > Speeches and Presentations > Speeches and Presentations 2008 > Energy in Canada - What are Canadians telling us? - What are we doing about it?

Energy in Canada - What are Canadians telling us? - What are we doing about it?

Presented by
Gaétan Caron
Chair and Chief Executive Officer
National Energy Board

2008 Ontario Energy Association's Speaker Series
Toronto, Ontario

13 May 2008

Energy in Canada - What are Canadians telling us? - What are we doing about it?

I am delighted to be with the Ontario Energy Association and its guests this morning to talk with you about energy in Canada. The last time I was here for a breakfast event like this one was when Brian Frank of BP came and spoke during a snowstorm!

Energy is a very strategic subject matter on the minds of Canadians right now, and will likely remain so for a long time. The future of oil sands, the gradual decline in the production of natural gas, the need for reliable electricity to support our way of life and our prosperity, the way we consume energy, the price of gasoline - these are all matters that we see in the media and discuss with our friends. Energy matters.

Furthermore, energy use is inextricably linked to the environment, so energy is at the very heart of our ongoing dialogue about sustainable development.

A lot of what is going on in the energy sector is addressed by provincial authorities. In producing provinces, provincial authorities make decisions in the best interest of their citizens residing. In every province and territory, provincial entities also look after the interest of their citizens in respect of the distribution, retail and use of energy.

Provincial Regulation

In Ontario, of course, your regulator is the Ontario Energy Board.

I had the privilege of participating in the Second Annual Canadian Energy Law Forum, hosted in Lake Louise on April 23^rd right after the Annual Conference of the Canadian Association of Members of Public Utilities Tribunals (CAMPUT) in late April. I had been asked to say a few words of recognition and appreciation for the leadership of Howard Wetston at the opening dinner. As I reflected on what I wanted to say about Howard, I quickly came up with the basic notion that, in Ontario, energy regulation and the energy sector generally is very much in a phase of transformation. I will tell you more about federal regulation in a moment, but what I will describe for you is very much in the nature of an evolution, not a revolution nor a transformation.

In Ontario, however, sustainable energy solutions are being sought. To meet this need, the energy sector in Ontario, and by that I include the industry, government, policy makers, consumers and the regulator, are focused on transforming the sector, somewhat urgently. The OEB itself was transformed a few years ago, and, as I said in my remarks in Lake Louise, Howard Wetston and his team are the right people, at the right time, at the right place, to lead that transformation. Kudos to Howard and his team.

Besides being an outstanding regulatory leader, Howard has also been an active supporter of CAMPUT, an organization I happen to be chairing right now. The OEB's strong and active participation in CAMPUT demonstrates its genuine commitment to continual improvement in regulation in Canada.

Our Vision

The NEB is Canada's federal energy regulator.

As the federal regulator, our vision is to be an active, effective and knowledgeable partner in the responsible development of Canada's energy sector for the benefit of Canadians.

We spent a lot of time deciding on that vision. Many people are struck, some are surprised, by the use of the word "partner", particularly in the context of a quasi-judicial organization expected to be independent and involved in the business of adjudication. It is always useful to go to the dictionary for the meaning of words. In the Oxford Canadian Dictionary, the word partner is defined as follows:

"A person who is associated with another or others in the carrying on of a business with shared risks and profits".

This definition is very instructive. I will tell you a bit more about the NEB's philosophy of regulation, but I will tell you right now that our basic philosophy is goal oriented, and risk-based.

Before I do that, let me first answer the question in the title of my presentation: Energy in Canada: What are Canadians telling us?

What are Canadians telling us?

Canadians are telling us five things:

They expect the facilities we regulate to be safe and secure
They expect the NEB and the companies we regulate to protect the environment
They count on us to ensure that the economics of the energy sector are sound, or, in economist language, which few people actually speak, that markets derive the benefits of economic efficiency
They expect to be meaningfully engaged in discussions related to the approval, the construction, the operation and the abandonment of energy infrastructure; and
They expect the NEB, as a public institution to be well run.

Not surprisingly, these five points are the five goals in our Strategic Plan.

At the NEB, we have the privilege of having a well-rounded mandate that integrates all aspects of sustainable development, namely, the environmental, social and economic aspects. Not only that, we are also accountable to Parliament for the full life span of the infrastructure we regulate, including public consultations and engagement before a project is filed, the hearing or project assessment stage and, if a project is approved, we are responsible throughout the construction, operation and abandonment of the facilities. I like to refer to these two considerations as "double integration".

Safety and security

Under the "social" aspects of our mandate, and somewhat related to environmental matters, the NEB is accountable for the safety and the security of the infrastructure we regulate.

We do so using a "goal-oriented" philosophy. We believe this is the most effective way of meeting or exceeding the expectations of Canadians in matters of safety and security. Let me explain why we think so.

Goal-Oriented Regulation

We describe our philosophy of regulation as "goal-oriented". This means that we focus on the outcomes, the "what". We are prepared to let the "how" be determined to a large extent by regulated entities, or by the results of their settlements with the industry, landowners, Aboriginal peoples, and other persons potentially affected by energy infrastructure development.

This slide defines the key concepts we use to describe what goal-oriented regulation means.

Goal-Oriented vs. Prescriptive Regulation

This slide shows the difference between goal-oriented regulation and prescriptive regulation.

In the end, the proof is always in the pudding. Our safety performance has been impressive. From 2003 to 2006 we did not experience a single pipeline rupture. In 2007, there were two ruptures on NEB-regulated pipelines, but I am pleased to report that the response to these ruptures from the regulated companies and all of the government departments and agencies to these ruptures was outstanding. Also, the number of incidents of a more routine nature compares very favourably to other modes of transportation monitored by the Transportation Safety Board of Canada.

Protection of the Environment

With respect to environmental factors, the NEB is again there, throughout the full life-span of facilities, from public consultations before an application is even filed, through planning and design, the hearing process, construction, operation and abandonment.

I will give a few examples of how, in practice, we fulfill our environmental mandate:

planning and design: our Filing Manual provides exhaustive requirements as to how a proponent must integrate environmental factors in the design of facilities. Applicants are required to provide an appropriate level of detail represented by a set of facts and a transparent and defensible line of reasoning that is sufficient to support identified issues, analysis and conclusions with respect to the environmental and socio-economic effects of the project.
construction: when we approve a project, there are conditions attached to the certificate or order. For example, on a recent project, we stipulated that the company must file its project Environmental Protection Plan and Restoration Plan, for approval before construction begins.
operation: our inspectors audit and inspect facilities that have been authorized by the NEB. For instance, during a recent operations and maintenance inspection near an environmentally sensitive area, we found that the company had demonstrated excellent compliance with the environmental protection requirements for the site, and confirmed that the company's manuals were being used to continually improve the company's management system.

These examples demonstrate how, in exercising its mandate, the NEB addresses the environmental factors that are related to the development of hydrocarbons under its jurisdiction, in an integrated way.

Economic Efficiency

Canadians are also telling us that they want the energy sector of the economy to run well. They say: we want governments, including regulatory agencies, to cost Canadians what is needed and necessary - no less, no more - and to do their work using only the time necessary to do a good job - and no longer.

In response to that, when we assess our performance, we seek to confirm two things:

The marketplace we regulate, that is, in large part, the hydrocarbons transportation systems in Canada, is working well; and
The NEB performs with efficiency and effectiveness, in the management of our financial and human resources, as indicated by our annual report to the Treasury Board, and we meet our service standards, as indicated in our report to Canadians.

Canadian Hydrocarbon Transportation System

On the first of these two points, every year, we publish an assessment of the Canadian Hydrocarbon Transportation system.

Our latest edition came out in July 2007, and the next one will be released in late June or early July 2008. In the report, expect to read about:

the adequacy of the infrastructure - a safe bet is to say that gas pipeline capacity is adequate and oil pipeline capacity is tight, with the market saying that more is needed;
pipeline tolls and shipper satisfaction with pipeline companies' services - again, a safe bet is to suggest that shippers are reasonably satisfied with the services they receive; and
pipeline companies' financial integrity and their ability to attract capital - I will not offer you a bet on this, given the fact that we have a proceeding underway dealing with the cost of capital for one of our regulated companies.

Service Standards (sample)

Informing Canadians of the time it takes to process applications is part of our commitment to transparency and regulatory efficiency. Every year, we publish our service standards, and we inform Canadians of our performance under these service standards. These are our latest published performance results relative to our service standards for a range of tasks.

Meaningful engagement

We have seen that the energy dialogue in Canada is growing in intensity and complexity. We must not be surprised by this. Society is evolving in that direction: people everywhere are better informed, better organized, better networked, and have their own vision of a better future for themselves, their children and their grandchildren. People expect to be meaningfully engaged in the energy dialogue. We are hearing that loud and clear from a broad range of Canadians, including energy consumers, landowners, Aboriginal peoples, and persons with an interest in environmental matters. And we are responding to that in a very concrete way. Let me give you a few examples.

We launched the Land Matters Consultation Initiative, or LMCI, in October 2007 to provide a forum for interested parties and the Board to discuss and generate options for the Board's review of lands issues. These discussions are expected to improve understanding of various interests, which will also help to develop stronger working relationships among the different parties. The initiative moved into gear in January 2008 and the process is now well underway

To date, 165 individuals, groups and companies have registered their interest, and over 400 people have participated in the LMCI consultations facilitated by NEB staff, taking place across Canada. Board Members also attended some of the meetings. LMCI discussions are looking at the range of existing legislative tools such as statutes, regulations, guidance notes, the filing manual, inspections and audits, to identify possible improvements in the future.

The LMCI discussion is separated into four streams:

- Company Interactions with Landowners;
- Improving the Accessibility of NEB Processes;
- Pipeline Abandonment - Financial Issues; and
- Pipeline Abandonment - Physical Issues.

Discussion papers on these four topics are available on our web site.
Engaging Environmental Non-Governmental Organizations: we recently entered into a partnership with the Pembina Institute, whose mission is to advance sustainable energy solutions through innovative research, education, consulting and advocacy. Through this partnership, our goal is to establish continually improving working relationships with persons with interests in environmental matters, and to identify how NEB regulatory processes can produce improved environmental outcomes.

Memorandum of Understanding

The third example of action we are taking is our recent Memorandum of Understanding with the First Nations Tax Commission (FNTC). The FNTC and the National Energy Board signed a Memorandum of Understanding on April 21^st, in which we agreed to become partners in learning by fostering and encouraging an effective working relationship on matters of mutual interest.

The First Nations Tax Commission and the National Energy Board share much in common. For example, we both hold public hearings in accordance with the rules of natural justice. This Memorandum of Understanding (MOU) will allow the First Nations Tax Commission and the National Energy Board to share our learnings related to public hearings. The MOU also lays the foundation for our two organizations to establish joint technical working groups, organize staff exchanges and to pursue other joint activities that promote our mutual objectives.

We are very proud of that MOU.

A well-run organization

Canadians are also telling us that they expect their regulator to be well managed. I will spare you the details of what we are doing to respond to that expectation in terms of financial and material resources. I would like to tell you, however, what we are doing about our human resources.

It is our people who make the big difference in the work we do and the outcomes we deliver for Canadians. Recently, our staff turnover rate has been higher than what we want to see. In that regard, we are like many other Calgary-based organizations. The Alberta economy and its labour market have recently gone from red hot to mere hot, but we are still working in an economy where the shortage of people is by far the main challenge of executive teams everywhere. I know you face a similar challenge in Ontario, but the Calgary situation is even worse.

Our response to date has been to include, in our compensation, some market-responsive elements. For example, we have introduced performance pay for all employees at the NEB. This has helped. At the same time, we recognize that more needs to be done, and more can be done.

One of our key objectives for the year in progress is the hiring and integration of 40 to 50 new members of staff. Another objective is to continue to make the NEB a very flexible workplace, where a solid work-life balance is the reality most of the time, and where people can be proud, after a hard day's work, of their unique contribution to the public interest.

A well-run organization (cont'd)

We do our work through a relatively modest organization, in terms of overall size. There are about 340 people working at the Board. Our budget is approximately $40 million. We have only one office, located in Calgary, Alberta (most other national institutions are located in Ottawa). We travel a lot throughout the country for hearings and meetings with the people of Canada. Our staff have expertise in a broad range of fields, given our broad mandate: engineers, environmental specialists, economists, market analysts, financial specialists, lawyers, and many others.

We are independent in that we report to Parliament, through the Minister of Natural Resources Canada. Our decisions are based on a public record, and our hearings rigorously follow the principles of natural justice, which includes transparency and procedural fairness.

We obtain our budget from Parliament. Our costs are recovered from industry, and the money collected returns to government. These costs are typically recovered by pipeline companies and energy exporters in their tolls. Therefore, the citizen does not pay for the NEB, except as a user of energy facilities.

Ontario and Energy

As Ontario is the largest province of Canada, in terms of people and its economy, let me make a few observations, from a national standpoint of energy matters in Ontario.

From where I stand, I see Ontario as being in need of a sustainable supply of gas, oil and electricity, and looking for the best means of satisfying its needs today and in the future, and for the best means of adapting its consuming practices to make them more sustainable through systemic change, societal choices, and individual behaviours.

Much of the action to be taken in the area of consumption and individual behaviours is under provincial jurisdiction. For the purpose of this morning's discussion, I will focus my brief comments on supply.

Canadian Oil Production Outlook

Canada's oil story is a positive one.

This production forecast comes from our Continuing Trends scenario from our most recent Canada's Energy Future report that was released in the fall of 2007. Canadian crude oil production is forecast to grow from about 2.7 million barrels per day in 2006 to 4.1 million barrels per day in 2015. By 2030, Canadian crude oil production could reach 4.7 million barrels per day.

You can see from the graph that oil sands production (the top two bands shown in purple and blue) will increasingly dominate Canadian oil production.

Canada's Oil Reserves

Canada's oil reserves are second only to Saudi Arabia. These reserves include Canada's oil sands.

Canadian Gas Production and Net Gas Exports - Continuing Trends

The scene is markedly different on the natural gas side.

This slide speaks to Canadian natural gas production. After growing steadily over the past two decades, natural gas production has flattened to around 17 billion cubic feet per day. While production increased, exports to the United States also increased. Natural gas exports accounted for 51% of total production by the end of 2007 (as shown by the red line).

Based on our Energy Future report, this graph shows the Continuing Trends scenario, which is one possible projection of future production and net exports to the United States. You can see in this scenario that our natural gas production level is expected to decline by about 40 per cent while domestic demand increases. As a result, net natural gas exports are expected to decline to the point where Canada becomes a net importer of natural gas by 2030.

There remains a significant amount of natural gas in Canada, however many of these new reserves are remote (for example, in the North) or unconventional (such as coal bed methane) and therefore relatively expensive and will require a higher price to make them economic to develop.

Gas Supply to Ontario

As a result of these supply fundamentals, we can expect changes in supply dynamics to Ontario markets.

Rockies gas - it is currently heading for the Chicago market and beyond to Ohio. There are a number of proposals to move that gas further into the U.S. Northeast. Getting Rockies gas to Ontario might require expanding the infrastructure interconnects into Ontario from Chicago/Indiana/Michigan.

Meanwhile, Vector pipeline has been expanding its capacity by using compression. The next tranche of expansions would be pipe looping. Union Gas also is planning Parkway expansions around Toronto.

In view of declining natural gas supplies, people look at LNG as an option. We are planning an energy market assessment on LNG in the next year, and we will discuss in that assessment the global availability of LNG and the impact the LNG situation may have on Canada's energy future.

IPL Reliability

On the topic of electricity supply for Ontario, I will simply say that the federal role in matters of electricity regulation is a limited one. The NEB regulates international power lines. These are typically short lines crossing the Canada/U.S. border. They are essential to North American trade, but they do not represent a significant amount of infrastructure, compared to what the provinces, including Ontario, actively regulate.

There is one area though where our role in electricity is greatly valued. In the area of reliability, the NEB is a partner with the provinces and territories and U.S. entities to promote reliability of the North American grid. Just a few weeks ago, after significant consultation, we announced that the NEB has decided to pursue an amendment to its Electricity Regulations to adopt NERC reliability standards with a broad definition to include regional variations. The Board indicated that it will work with the provinces to avoid duplication in implementing the reliability standards on international power lines. Shortly afterwards, the IESO, among other stakeholders, expressed its support to work with the NEB on this matter.

This is an example of how the NEB's work is relevant to Ontario in the area of electricity supply. Our role is modest, but it is also material.

Looking forward

There is so much more I could say about energy and Ontario. I'll stop here, so there is time for you to ask questions and provide feedback on our work.

I would like to conclude by saying that Canadian energy regulators, and the National Energy Board and the Ontario Energy Board in particular, are well positioned to deal with the public interest issues that lie ahead in Canada, its provinces and its territories.

The reason for my belief is that everywhere I go, everybody I talk with, and every time I examine the question, I get the same feeling: Canadian energy regulators are committed to continual improvement, they seek to learn from each other, they pursue best practices, and they constantly and meaningfully consult with the people who are impacted by regulatory decisions.

My belief also includes a determination to keep working on it: we have not achieved yet the perfect regulatory regime in Canada, its provinces and territories. There are opportunities to further improve the efficiency of the process, in terms of how much time and resources need to be invested in process, and in terms of the effectiveness of our actions, in the sense of achieving the desired outcomes of world-class regulation.