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National Energy Board Cost Recovery Regulations for the Electricity Industry - Overview of Electricity Program [PDF 63 KB]

Overview of Electricity Program

Hotel Queen Elizabeth, Montréal

2 June 2005


Electricity Program

  • What do we do?
  • Why do we do it?
  • How?
  • Context for cost recovery options


Electricity Mandate

  • National Energy Board Act (NEB Act)
    • Construction and operation of international power lines
    • Electricity exports
    • Advisory Function
  • Canadian Environmental Assessment Act (CEA Act)


Electricity Mandate (cont’d)

  • Canadian Security Act
    • outcome of 9/11
    • recent changes to NEB Act


Electricity Regulation - Some History

  • Canadian Electricity Policy (1988)
    • In response to industry restructuring
  • NEB Act revised in 1990
    • removed prescriptive tests to demonstrate that exports are surplus to domestic needs
    • main criteria for applicant to demonstrate:
      • effect on other provinces
      • impact on the environment
      • fair market access for Canadian consumers
    • no export hearings since 1990


Electricity Regulation - Some History (cont’d)

  • With some exceptions ... “the Board shall, on application to it and without holding a public hearing, issue a permit authorizing the exportation of electricity.” (s. 119.03)
  • With some exceptions ... “ The Board shall, on application to it and without holding a public hearing, issue a permit authorizing the construction and operation of an international power line.” (s. 58.11)


Electricity Regulatory Duties

  • International Power Lines
    • Authorization - may involve a public hearing Project monitoring post approval
    • Project monitoring post approval
      • monitoring is more extensive in the event of “election”
  • Electricity Exports
    • Authorization - permits / licences
    • Monthly returns
    • Compliance with permits / licences
  • Ongoing regulatory work
    • Pre-application meetings; regulatory issues


Electricity Regulatory Duties (cont’d)

  • Evolving responsibilities for IPLs
    • Ongoing operations and safety
    • Reliability
      • including implementation of Canada-U.S. Blackout Task force recommendations
      • federal/provincial/territorial reliability subcommittee
    • Security


Processing Applications

  • Electricity Exports
    • 45 days after posting in Canada Gazette
    • plus ... internal processing
    • typically 60-75 days total, if no interventions
    • 10-12 applications per year
  • International Power Lines (IPLs)
    • timing is nominally similar to exports
    • however, typically take longer
    • 4 applications over past 4 years (3 hearings)


Market Monitoring

  • Restructuring of energy markets, and less prescriptive regulation has led to increased need for monitoring
  • In deciding energy exports, the NEB needs to consider ... Are markets working?
    • Electricity ... Do Canadians have fair market access?
    • Similar criteria for natural gas and oil exports


Market Monitoring (cont’d)

  • An important aspect of Goal 3: Canadians derive the benefits of economic efficiency
    • Strategy: Promote understanding of energy markets
    • Measure: Evidence that Canadian energy and transportation markets are working well.
  • A near-term objective: inform policy makers


Market Monitoring (cont’d)

  • Monitoring provides information to stakeholders, including the general public, and allows Canadians to benefit from economic efficiency
  • Market monitoring ensures the Board has the necessary information to make effective decisions in the public interest
  • Multi-commodity/convergence issues
    • E.g., oil sands implications for natural gas and electric transmission


Energy Market Assessments

  • The Board has undertaken 4 electricity market assessments since early 2001
  • 2 more over the next nine months ... based in part on a website survey last fall
  • Analyses include broad consultation with stakeholders


Cost Recovery

  • Historically the electricity industry consisted primarily of vertically-integrated utilities (VIUs), usually Crown corporations
  • Costs were (and still are) recovered on the basis of export volumes


Changes to Electricity Industry

  • Restructuring
    • FERC Order 888 (1996)
    • VIUs have been “unbundled,” based on functions
    • More players, such as marketers
  • International trade has increased since 1996 (see chart)
    • Exports have decreased; imports have increased


Canadian International Trade in Electricity (Exports + Imports)

Canadian International Trade in Electricity (Exports + Imports)



  • Cost recovery has been reallocated from VIUs to their exporting entities, and to new marketers
  • The cost recovery base (exports) has been declining in recent years
  • Imports have been increasing, but are not included in the cost recovery base
  • IPLs are not included in the cost recovery base


Observations (cont’d)

  • Some application costs are not recoverable or cannot be recovered from those who caused them (e.g., IPL facilities applications)
  • Parties that derive “reliability benefits” from IPLs are not included in the cost recovery base ... should they be?
  • Implication
    • Change to cost allocation mechanism may be warranted ... options to be addressed this afternoon.
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