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Home > Speeches and Presentations > Speeches and Presentations 2010 > Early Warning Signals

Early Warning Signals

Presented by
Bob Vergette, P. Eng.
Member
National Energy Board

International Pipeline Conference
Calgary, Alberta

29 September 2010

Thanks for the opportunity to address you today. While I am a Board Member of the NEB, the comments I make today are not those of the NEB but are my own.

In my presentation I will focus on the responsibilities of the pipeline company to know about problems on their systems as they develop and to fix problems before they develop into a major public safety or environmental incident. I will talk about the impact that incentive agreements could have on pipeline safety and integrity on aging pipelines. Finally I will give my view on how pipelines can continue to operate safely.

Aging Infrastructure

Pipelines in Canada are aging; however, given the ability of existing technology to extend physical life, the physical life of pipelines can be very long.

Effective maintenance programs can result in very old pipelines continuing to operate safely.

However older pipelines require more maintenance than new ones.

Incentive Agreements

In 1995 the first major pipeline regulated by the NEB negotiated an incentive tolling agreement and in the next few years most pipelines established similar agreements.

In traditional cost of service regulation the shippers on the system bear the majority of the impact of cost increases from year to year. The main purpose of incentive agreements is to balance the risks between the shippers and the company and to provide a reward for the company for reducing costs with savings often split with the shippers.

Generally incentive agreements acknowledge that company will assume certain risks for the potential rewards. Multi-year incentive agreements, if approved by the NEB, reduce regulatory burden for Companies and shippers by avoiding lengthy and costly toll hearings.

The Board does not take a position on whether companies use traditional cost of service regulation or negotiate incentive agreements. The Board is primarily concerned that the tolls that result are just and reasonable, and not unjustly discriminatory.

Incentive agreements often include, among other things, provisions to share cost savings derived from cutting costs.

Cost reductions might be derived from better technology and more efficient ways of doing things (e.g. redeploying staff to reduce vehicle travel time). Cost reductions could also be derived from a reduction programs or in combination with increased efficiency and use of new technology.

The incentive agreements of some pipelines have integrity rolled in with O&M but many have direct integrity costs as a flow through.

There are O&M cost reductions that are not defined as "integrity" costs that can nevertheless affect integrity. An example is maintenance staff reductions.

In my opinion company management must carefully evaluate options for cost reductions and other efficiencies to ensure they are satisfied that pipeline will continue to operate safely and the environment will be protected.

Companies should be wary of the potential impact on pipeline integrity of a continuing focus on containing costs over the years. Maintenance and integrity costs should be considered a legitimate cost of providing service, and reducing costs should not take precedence over ensuring proper maintenance and integrity, safety and environmental protection.

I am pleased when incentive agreements which include high level objective statements to the effect that the agreement provides for the lowest possible tolls without compromising safety or the environment. Actions of the company must be in line with those statements.

Perceived Conflicting Drivers

As pipelines age they require more and more maintenance to keep them operating safely.

It is important that incentive agreements include provisions for adequate maintenance.

While many of the incentive agreements have integrity costs as a flow through, some do not.

Also as noted there are other O&M pipeline costs that are not directly related to integrity but that can affect pipeline safety.

Some concepts that support a good operation

I believe the most effective way for pipelines to operate safely over the long term is to have an experienced, dedicated, technical and operating staff.

These folks are the ones who care about the system more than anything else and are proactively looking for what can go wrong and fixing it. They go the extra mile.

In my view the engineers play a key role in ensuring integrity and maintenance in a company. One way to ensure that they are able to carry out this key role is to promote technical excellence and professionalism.

Speaking for myself, companies with policies that promote all technical staff belonging to professional and technical organizations and active participation in those organizations, particularly in the technical organizations, have a greater chance of ensuring that their technical staff are equipped to carry out their roles.

Again speaking for myself and not the Board, it is important that those reviewing the company programs and budgets have a strong focus on ensuring the ongoing integrity of the pipeline, and that they have the views of their experienced and dedicated operations and technical staff.

Technical recommendations need to be considered seriously despite any impact on the bottom line.

Some concepts that support a good operation

Companies must do a thorough job of identifying the hazards that could compromise pipeline integrity, safety and environmental protection.

It is important to remember that hazards not identified are usually not mitigated.

In closing it is important to remember the old adage that an ounce of prevention is worth a pound of cure.

 

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Date Modified:

2011-10-28