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Home > Speeches and Presentations > Speeches and Presentations 2008 > North American Energy and Responsible Development: The Role of the National Energy Board as a Partner

North American Energy and Responsible Development: The Role of the National Energy Board as a Partner

Presented by
Gaétan Caron
Chair and CEO
National Energy Board

Legal and Regulatory Affairs Committee
Interstate Oil & Gas Compact Commission

6 May 2008

North American Energy and Responsible Development: The Role of the National Energy Board as a Partner

I wish to thank the Interstate Oil and Gas Compact Commission for inviting me to participate in today's meeting of your Legal and Regulatory Affairs Committee here in Calgary. I am very pleased to do my small part to support your objective to efficiently maximize oil and natural gas resources through sound regulatory practices while protecting health, safety and the environment.

I am the Chair and CEO of the National Energy Board of Canada, a public institution that will celebrate its 50th anniversary next year. I feel privileged today to be here with you and be part of the ongoing learning among those involved with regulatory processes.

I have been asked to speak about the NEB's role, responsibilities and practices, as well as some of the energy developments that we are addressing.

Canada's Energy Resources

Canada is rich in energy resources and it is vital that these resources are managed responsibly and safely.

Including the oil sands, Canada's oil reserves are second only to Saudi Arabia. Canadian oil production is projected to grow from about 2.7 million barrels day in 2007 to 3.5 million barrels per day in 2015.

Net natural gas exports for 2007 were about 9.1 Bcf/d. We are exporting more than half of our production. From a US standpoint, Canadian natural gas represents 15% of American natural gas requirements. Canada's largest export markets are the U.S. Central/Midwest and Northeast regions.

In 2007, the energy industry accounted for almost 6 percent of Canada's gross domestic product and $90 billion of our total exports. In real terms, energy accounts for about 20 percent of the total value of Canadian exports. Last year the energy industry spent almost $69 billion in Canada or about 35 percent of total private sector investment in this country.

For these resources to be provided to the marketplace, Canada needs infrastructure such as pipelines and electric power lines.

Energy Roles - Regulatory

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. The NEB strives for excellence in regulatory leadership and accountability.

Natural Resources Canada is the government's primary source of energy policy advice. The NEB takes government energy policies into account when carrying out its regulatory functions.

Most provinces and territories have energy regulating bodies with specific mandates and responsibilities for their jurisdiction. Provinces own their natural resources and have their own regulators for resource conservation and intra-provincial transmission.

The NEB works with a number of provincial and federal agencies to share best practices and to improve the regulatory process.

What is the National Energy Board?

The National Energy Board is an independent federal agency established by the Parliament of Canada in 1959 to regulate international and inter-provincial parts of the oil, gas and electric utility industries. The NEB Act provides the authority for how the NEB conducts its business.

The NEB is accountable to Parliament through the Minister of Natural Resources Canada.

In addition to the Board's role as a regulator, it occasionally provides energy advice to the Minister. The NEB also reports to the public on specific energy issues, holds public inquiries when appropriate and monitors current and future supplies of Canada's major energy commodities.

So in terms comparable to the U.S., the NEB combines responsibilities of the Federal Energy Regulatory Commission, with many of those of the US Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Energy Information Administration.

For pipelines, the NEB's role encompasses safety, environment and economics. This gives us the authority to inspect the facilities, audit a company's operations and safety program and to address issues related to abandoning a facility at the end of its useful life.

Our Regulatory Role

The NEB regulates the following aspects of the energy industry:

the construction and operation of inter-provincial and international pipelines;
the traffic, tolls and tariffs of inter-provincial and international pipelines;
the construction and operation of international and designated inter-provincial power lines;
the export and import of natural gas;
the export of oil, propane, butanes, ethane and electricity; and
oil and gas activities on frontier lands and offshore areas not covered by federal or provincial management agreements.

I see the regulatory framework in Canada as an optimal balance, for our socio-political environment, between "letting the market work" and the government's oversight of the market. In a nutshell, markets, including energy markets and energy infrastructure markets, are allowed to operate freely, subject to regulatory oversight when it is demonstrated that markets alone would not serve the public interest.

For example, in Canada, you may not build a new pipeline, or expand an existing one, without approval from the National Energy Board or the relevant authorities of the applicable province or territory. Conversely, you may export natural gas on a short term basis, which the Board defines as a period of less than two years with no limit on the amounts, through a simple one page application. If you meet the requirements, our standard is for an approval within 48 hours. For longer term exports, you need a licence, which is subject to a market-based procedure.

The majority of investments in Canada's energy sector come from the private sector. The exception to this is the electricity sector where provinces rich in hydro-electric power own their publicly funded and publicly managed utilities. In the end, the public good depends, in large part, on private sector investments that are regulated by government.

How does the NEB operate?

Applications are made to the Board for any of the activities that the NEB regulates. Decisions on these applications are made in a way that is similar to civil court decisions. For major applications, the NEB holds oral public hearings. Normally a panel of three Board Members makes a decision on the application. Oral hearings are usually held in locations where there is specific interest in the application. Public hearings may also be conducted in writing.

Since our mandate begins before applications for infrastructure are filed, and applies throughout the life of the facility, when we have a hearing about a proposed pipeline we recognize we need not solve all of the detailed engineering and environmental issues during the hearing. Many of these issues can be addressed after project approval, during the detailed design phase, the construction phase and the operation phase. The hearing can then focus on issues related to technical and economic feasibility, and the public interest.

Under the NEB Act, up to nine Board Members may be appointed. Members are selected from the private and public sector and they have knowledge or expertise in areas such as economics, engineering, environment, finance, law, public participation, safety and science.

The Board Members are supported by about 340 employees with diverse skills and expertise. Our staff have expertise in a broad range of fields: engineers, environmental specialists, economists, market analysts, financial specialists, lawyers, and many others.

We have only one office, located in Calgary. Our budget is approximately $US 40 million and 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 indirectly as a user of energy facilities

Memorandum of Understanding

North American energy markets are integrated and regulators are in tune with each other

No amount of hard work and intelligence can replace the immense value of learning from and cooperating with, other regulators. This spirit guides our informal tri-lateral cooperation with the U.S. and Mexico.

Other arrangements are more formal in terms of connecting infrastructure, such as our Memorandum of Understanding between the NEB and the U.S. Federal Energy Regulatory Commission, in its full length version, signed in 2004.

Clauses 4 and 5 are particularly important. They recognize that appropriate coordination can promote the public interest through increased efficiency and coordinated action on significant energy infrastructure projects, which in turn could lead to cost savings to both the public and regulated entities.

This cooperation does not extend to holding joint hearings, but we do keep each other informed, a form of conscious parallelism where we do our individual work but are aware of what each other is doing. So far it has worked well as we have no pipes coming to a dead-end at the border.

A key distinction is Canada's preference for rolled-in rate treatment while incremental treatment is more common in the U.S., particularly for Optional Certificates, or Optional Expedited Certificates as they were formerly known.

Sustainability

Sustainability is a global objective

Letting the market work is consistent with the increasingly integrated nature of world economies, which leads to the prosperity of nations. Promoting economic prosperity must come hand-in-hand with social prosperity and environmental excellence - this is at the heart of sustainable development. The 1992 Earth Summit in Rio de Janeiro provided the forum for integrating these three variables into the concept of sustainability, and the concept is still alive and well in 2008.

In Canada's case, we are privileged as an energy regulator to have, in our mandate, tools for managing several dimensions of sustainable development. With respect to gas and oil pipelines, for instance, we are responsible for public safety, security, environmental protection, tolls, tariffs and access. Moreover, we are responsible for the entire lifespan of facilities. We are involved even before applications are filed, through pre-application meetings with our regulated companies and public consultation sessions. We hold public hearings for the larger or more contentious applications. When we approve facilities, we attach specific conditions, which we monitor ourselves. We have engineers and environmental experts who inspect facilities throughout their lifespan. We audit companies for compliance with our requirements. We also regulate the abandonment of facilities. We are a good example of a one-window approach to regulation.

Life Cycle Approach

The NEB takes a life cycle approach to regulation. We are involved from the application stage, through construction and long-term operations, and through the abandonment of the project.

Our purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the interest of Canadians.

Safety is one of the top priorities at the NEB. The Board is responsible for ensuring companies meet regulations on the safety of employees, the public and the environment as they may be affected by the design, construction, operation, maintenance and abandonment of a pipeline or international power line that we regulate. The NEB works with the Canadian Standards Association to establish safety regulations and technical standards for federally regulated pipelines.

Environmental protection, as a component of the public interest, is part of the Board's mandate. As a Responsible Authority under the Canadian Environmental Assessment Act, the Board ensures that appropriate environmental assessments are conducted for projects under its jurisdiction. The NEB's environmental responsibility includes ensuring environmental protection during planning, construction, operation and abandonment of facilities within its jurisdiction.

If a project is approved, the NEB ensures the company continues to protect the environment, public health and safety by auditing and inspecting the company's construction activities, maintenance program and monitoring procedures during the operation of the pipeline and its procedures during abandonment.

Regulatory Improvement - I

The quality of life that the citizens enjoy every day depends in large measure on the quality of their public institutions. Regulatory agencies in the energy sector are such institutions. Since we are dedicated to the public interest, what we do is very relevant to the quality of life of citizens.

Determining the public interest is never easy. I can assure you it is a very challenging task. Promoting the public interest also is about seizing opportunities. The journey towards regulatory efficiency and effectiveness never ends. People at the NEB are truly committed to continual improvement in all we do. I will give you a few examples.

Increasingly effective engagement of Canadians in NEB processes is a major opportunity, which we are committed to seizing. The Board's Land Matters Consultation Initiative is one of the ways we are taking hold of this opportunity. The initiative is aimed at improving everyone's understanding of:

effective company interactions with landowners;
the NEB's processes, which are accessible to all;
financial aspects of pipeline abandonment;
and technical aspects of pipeline abandonment.

At the same time, we are working toward engaging those with environmental interests in the continual improvement of environmental protection. We are also completing a pilot project for online filing of non-hearing applications, making the filing requirements more transparent so that companies can build applications that match their projects in terms of complexity. This way, our staff can focus on issues that require more analysis, making our work more effective while still upholding our high standards of safety and environmental excellence. We should go live with the new online system in the spring.

Regulatory Improvement - II

At the National Energy Board we have also made improvements in the way we interact with other government processes, notably the environmental assessment process. In that respect, we actively support and we are contributing to the following government-wide initiatives:

- The Major Project Management Office announced by the Federal Government in Budget 2007, and launched by Minister Lunn on October 1^st, 2007.

- The Northern Regulatory Improvement Initiative launched by Minister Strahl of Indian and Northern Affairs Canada on November 7^th, 2007. As part of his announcement, Minister Strahl announced the appointment of Neil McCrank, former Chair of the Alberta Energy and Utilities Board, to lead this effort.

- The regulatory improvement work carried out under the auspices of the Conference of Energy and Mines Ministers, with the goal of sharing best practices among federal, provincial, and territorial regulators throughout Canada. The NEB works in this area through involvement in the association of regulators, CAMPUT.

Speaking about the future of utility regulation, a former NEB Board Member, Jean-Paul Théorêt put it well when he said, "Much more needs to be done, and can be done, for Canada to remain competitive in the world. For utility regulation to remain effective, policy makers and regulators need to improve a number of things:

Coordination of environmental assessments with regulatory reviews,

Consultation with Aboriginal peoples,

and Reducing the time taken to make regulatory decisions, are three prime examples."

The journey towards regulatory efficiency and effectiveness never ends. In a perfect world there would be legislative change to support this regulatory change. But the legislative route can take a lot of time, and rather than wait, the people at the NEB are truly committed to continual improvement in all we do. These incremental improvements done within our statutory mandate can combine to provide breakthroughs over time within our own organization and through interacting with others.

Mackenzie Gas Pipeline

The following are some of the major energy infrastructure developments that we are seeing.

I can't say much about the Mackenzie Gas Project because the proceedings are ongoing. I will simply refer to the Panel's concluding remarks in Yellowknife in September 2007:

We will receive and consider the Joint Review Panel report responsible for the environmental and socio-economic assessment of the project.

We will receive and consider the government's response to that report.

We will hear final argument. We expect to be convening for final argument about 4 months after receipt of the Joint Review Panel report.

Proposed Liquids Pipelines

Project Status Update

The biggest contributor to our current workload are applications for oil pipeline facilities. In the last year we have approved over 1 million barrels per day of capacity, including the Keystone Pipeline Project, Alberta Clipper Pipeline Project and Southern Lights Pipeline Project.

Applications involving another 1 million barrels per day of oil capacity have been filed including the Enbridge Line 4 Extension Project and the Keystone Cushing Expansion Project.

There are additional proposed oil pipeline projects out there currently seeking market support - one of which is the Gateway Pipeline Project.

Our regulatory activity has also included a number of natural gas pipeline applications of a more modest scale including the Emera Brunswick Pipeline, SemCAMS Redwillow Pipeline Project, and the Westcoast South Peace Pipeline Project.

In pipeline toll proceedings, there is an increasing focus on cost of capital and relative competitiveness with pipelines in the U.S. In 2008, we are addressing toll proceedings involving Trans Québec & Maritimes, Alliance Pipelines and Enbridge Pipeline's Line 9.

Our work on import and export licences is a key example of the interaction between Canada and the U.S. markets. For more than a decade, Canadian natural gas exports have been on a short term basis of less than two years and handled with a simple one page application. Recently we have received applications for long term import and export licences for LNG to be shipped into New Brunswick and exported to the U.S. A public hearing is required for a licence application to be considered.

Ex-Western Canada Oil Outlook

As I mentioned, applications for new and upgraded oil pipeline capacity have represented the largest source of regulatory workload at the NEB. The desire for more oil pipeline capacity is being spurred by growth in oil sands production in western Canada.

This chart shows three projections of oil throughput requirements out of western Canada as represented by the three lines. These projections indicate growth between 1 and 2 million barrels per day by 2015.

Behind those lines are columns representing the capacity of existing, approved, applied-for and other proposed pipelines out of the region. According to this comparison, capacity is likely to remain relatively tight in the near term. In the longer term, the market will need to determine which of the proposed projects will garner the support needed to proceed to the regulatory phase.

Energy Futures

Given the importance of energy resources in Canada, the National Energy Board has a mandate to monitor the outlook of energy supply and demand in Canadian markets and to provide Canadians with energy information. This is the purpose of our 2007 report on Canada's Energy Future. Given all the information we gather as part of our regulatory role, it makes sense for us to return that information to Canadians and to the market place. The free flow of information is part of what makes energy markets efficient, and providing this information to the marketplace contributes to economic efficiency.

The Board's report on Canada's Energy Future is a comprehensive outlook for the years 2005 to 2030 which takes a look at Canada's energy system from a variety of perspectives, including supply and demand, pricing, economics, and the environment. The report includes a reference case and three different scenarios. The Reference Case is our view of how trends in Canadian supply and demand will develop from now until to 2015 based on current decisions and policies and current economic and energy trends.

The three scenarios are intended to address uncertainty, which is caused by world geopolitical and economic factors, social trends, future policy decisions, or technology developments. Each scenario is based on a set of internally consistent assumptions, designed to test our findings. We see each scenario as plausible and don't attach a probability to the scenario.

The Continuing Trends scenario is a continuation of the reference case for another 15 years to 2030.

The Triple E scenario is about well functioning global energy markets, cooperative international agreements, and effective environmental policies. It assumes fairly aggressive conservation goals pursued on a global level. The scenario has more moderate economic growth as a result of economic/environmental trade-offs. There is a preference given to renewable energy sources, nuclear and natural gas and some form of carbon pricing is assumed. By 2030, this scenario has the lowest energy prices. This is achieved through a cooperative global environment resulting in abundant energy supplies around the world, as well as comprehensive energy demand management programs, which slow energy demand growth.

The Fortified Islands scenario focuses on energy security. It has the slowest economic growth and highest energy prices. These outcomes are a result of a security conscious world, where continued geopolitical tensions, lack of international cooperation and trust, and protectionist government policies limit access to cheap global energy supplies. The emphasis is on developing indigenous energy sources.

Alaska Gas Pipeline

I'd also like to include some discussion of the proposed Alaska Gas Pipeline.

First a bit of history. In 1976 and 1977, the NEB held a hearing on northern gas pipeline applications that sat for 214 days. The Board's decision favoured the Foothills Pipeline proposal for a pipeline to transport gas from Alaska through the Yukon along the Alaska Highway, then south through British Columbia and Alberta and into the US Lower 48.

In September 1977, an agreement between Canada and the U.S. was signed which committed both countries to the construction of a pipeline from Alaska and northern Canada.

In April 1978, Royal Assent was given to the Northern Pipeline Act. The Act declared that certificates of public convenience and necessity were issued and deemed to be NEB certificates for the Foothills group of companies. The Act also authorized the establishment of the Northern Pipeline Agency to oversee the planning and construction of the Canadian section of the project.

Between 1980 and 1982, the western and eastern legs of the pre-build were constructed. During this period, the Northern Pipeline Agency grew to approximately 135 employees, located in Ottawa, Calgary and Whitehorse. The northern portion of the pipeline was originally intended to be completed immediately after the pre-build. However market circumstances changed. Demand for natural gas in the U.S. declined, interest rates and inflation rose, and the northern portion was never built. Northern Pipeline Agency staff returned to their original organizations, including the NEB.

Fast forward to January 2008, when the Alaska Governor and her Gas Team announced that a proposal from TransCanada/Foothills Pipelines for the Alaska portion of a pipeline has met the requirements of the Alaska Gas Inducement Act. TransCanada/Foothills Pipelines has retained the original certificates issued under the Northern Pipeline Act. Some of the other proposals that had surfaced prior to the Alaska Gas Inducement Act process had raised the prospect of filing an application under the National Energy Board Act.

Canada is ready to deal with any application, whether it is applied for under the Northern Pipeline Act or the National Energy Board Act. A regulator can best meet the challenge by maintaining a constant state of readiness for the possible applications that may be filed. This means, in practice, that out staff stays in touch with people in the energy sector, and Board members stay abreast, through the information provided by our staff and through their own research of energy developments.

Effective Regulation

I would like to close with the NEB's philosophy of effective regulation. We have adopted a "goal-oriented" and risk-based approach to regulation. We want to move beyond simply policing industry for compliance with legal requirements.

What goal-oriented means in practice is that, as a regulator, we specify the "what", for instance that a regulated company must have management systems that promote public safety and environmental excellence, and that we leave the choice of “ how” to meet these objectives to industry.

Further, we focus our limited resources where they matter the most, that is on identifying and mitigating high risk issues that will have the greatest effect on the public and industry.

Partnering with key stakeholders is part of the NEB's vision for effective regulation. I look forward to continually working with our stakeholders, to set and achieve sustainable outcomes for oil and gas development.

Contact us

If you are interested in knowing more about the topics I discussed today, you can talk to me, or: