Regulating Energy Infrastructure in the 21st Century

Canadian Property Tax Association – Western Chapter Educational Seminar

Peter Watson, Chair and CEO

7 March 2017

Introduction speaking notes (click to view)

Good afternoon. I’m pleased to be here today to present the National Energy Board’s perspective on regulating energy infrastructure in the 21st century. Over the past few years, you have undoubtedly heard about the NEB and the work we do. You may have read about us online, in a newspaper, or seen us on the news.

And you likely have heard that the NEB is going through a modernization process, with the federal government recently introducing legislation that will bring forward a new environmental review process for major resource projects in Canada.

That legislation calls for the NEB to transition to a new organization named the Canadian Energy Regulator. And currently this legislation is working its way through Parliament.

I’m going to talk about this change in a few minutes, but first, I want to tell you a bit about the NEB, give you some historical context, and then tell you about the work that we began several years ago to prepare for the changes we are facing, now and into the future.

 

1. Introduction

Major Pipeline Systems and Frontier Activities Regulated by the national Energy Board
Slide 1 speaking notes (click to view)

First, as Canada’s national energy regulator, the NEB is not just an organization that conducts pipeline hearings. The NEB is also mandated to regulate safety and environmental protection for over 73,000 km of interprovincial and international pipelines, which if laid end-to-end, would wrap around the earth nearly 2 times.

We also regulate:

  • about 1,400 km of international and designated power lines;
  • imports of natural gas; and
  • exports of crude oil and natural gas liquids.

The NEB is a lifecycle regulator. We oversee a pipeline project from the application assessment phase, through to construction, operation, and eventual abandonment. Our work places us squarely in the midst of the most important public policy debates in Canada.

From pipeline safety, to controversial pipeline projects, to climate change policy and the transition to lower carbon energy systems…the NEB is in the middle of it all.

 

2. NEB Energy Oversight

Canada's Energy Future 2017 Cover
Slide 2 speaking notes (click to view)

As Canada’s national energy regulator, a key aspect of the NEB’s mandate is to:

  • study energy matters over which parliament has jurisdiction;
  • provide the government with advice on those issues; and
  • deliver information to Canadians on energy matters.

To give you an example of how seriously we take that responsibility, and how long we have been doing it, I want to share with you some historical context.

On the slide behind me, you will see on the right, the NEB’s ‘Energy Futures Report 2017: Energy Supply and Demand Projections to 2040.’ This report was released last December. On the left, you will see the NEB’s original ‘Energy Supply and Demand Forecast Report,’ which was released about 50 years ago in 1967. These two documents – and all of the Energy Futures Reports that we published between 1967 and 2017 – are key reference points for energy experts, governments, and ordinary Canadians.

And our 2017 Report remains the ONLY publicly available Canadian long-term energy outlook covering all energy commodities and all provinces and territories.

 

3. NEB Energy Information: Historical Context

  • Crude oil and natural gas liquid production:
    • 1967: 1.1 million barrels per day
    • 2017: 4.2 million barrels per day
  • Crude exports to the US:
    • 1967: 414,000 barrels per day
    • 2017: 3.45 million barrels per day
  • Oilsands production:
    • 1967: 45,000 barrels per day -First commercial operation
    • 2017: 2.7 million barrels per day
  • Natural gas production:
    • 1967: 40 bcf/day
    • 2017: 15.60 bcf/day
  • Natural gas exports:
    • 1967: 1.4 bcf/day
    • 2017: 8.2 bcf/day
  • Electricity:
    • 1967: hydro accounts for about 80%, remainder fossil fuels
    • 2017: mix of hydro, nuclear, fossil fuels, wind, biomass & solar
Slide 3 speaking notes (click to view)

So – for your interest – I want to bring some historical context to this discussion by highlighting the NEB’s Energy Futures Report from 50 years ago, and Energy Futures 2017.

This slide focuses on:

  • crude oil and natural gas liquids production;
  • crude oil exports; and
  • oil sands production.

What you first notice about the slide is that all the numbers have all gone up in the past 50 years. But what the slide also shows is that the NEB is still working on issues today that we were working on 50 years ago; transporting resources to markets safely and ensuring that the public and the environment is protected.

Gas production has gone up significantly in the past 50 years. But in 1967, the issue was monetizing gas by moving it into the American marketplace. And today, while significantly more Canadian gas gets to the U.S. – there are still major issues of natural gas pipeline constraints that are being grappled with. In 1967, hydro accounted for the vast majority of electricity generated in Canada. Today, it’s a mix of hydro, other renewables and hydrocarbons.

Another interesting note from the 1967 report is that the issue of electrification of vehicles is mentioned – as well as concerns regarding coal emissions. And this is decades before these issues caught the imagination of the public.

So, it’s a continuing story. We are working on issues that have been around since 1967, long before the term ‘NEB Modernization’ was invented. And we will continue to work on them…long after the term ‘NEB Modernization’ is forgotten.

Today, we are just at a different stage of evolution. So, let me tell you a bit more about what the NEB has been working on over the past few years in preparation for the latest change in our evolution.

 

4. Regulating in the 21st Century is Increasingly Challenging

  • Low public confidence
  • New players mean many narratives are intersecting where energy infrastructure decisions are made
  • Dearth of dependable energy information (whether real or perceived)
    • ... as a result, energy regulatory processes are called into question.
  • However, other factors have also changed
An Interconnected System: Policy Gaps Cascade on Regulation

Source: Cleland, Michael and Gattinger, Monica. “System Under Stress: Energy Decision-Making in Canada and the Need for Reform”. March 2017.

Slide 4 speaking notes (click to view)

As you can imagine, regulating energy infrastructure in the 21st century is increasingly challenging. And today, I believe that the context of energy regulation is more polarized than it has ever been.

In their insightful 2017 report on the issues facing Canada’s energy system, Michael Cleland and Monica Gattinger point out that the key challenge facing regulators today is low public confidence.

They attribute this challenge to:

  • social, value and technological change;
  • policy gaps in climate change;
  • reconciliation with Indigenous Peoples; and
  • cumulative effects of energy development.

In the middle of these issues, they say, is the energy regulatory process, which has been called upon to adjudicate on tough policy issues that actually require processes with explicit political accountability.

Against a context in which society often distrusts authority and expertise, they continue, it is not surprising that many energy adjudication processes have become increasingly protracted and uncertain – and have failed the test of some public expectations.

As a result – they say – outcomes may be contrary to the interests of Canada as a society, without necessarily satisfying communities, businesses or advocacy groups. In short, they believe that we are all losing.

At the heart of the Board’s mandate is the public interest, which involves balancing society’s environmental, economic, and social interests.

While having the flexibility to determine the public interest is important, we also recognize improvements to the lega

l framework surrounding our adjudication processes and other issues of material importance, will help to deliver better outcomes for all Canadians. To that end, we fully support the Government of Canada’s modernization of the NEB. But we also understand that the challenges Cleland and Gattinger identify are system challenges that a regulator cannot resolve on its own.

So what are we to do? First, grow a thick skin…and believe me, at the NEB, we have done that. Then we need to focus relentlessly on improving our oversight of industry performance on matters of safety and environmental protection. We also need to support and help inform the federal government on issues that should be considered for modernization.

 

5. Modernization

  • Modern Governance
  • System-wide focus on regional and cumulative effects
  • More public engagement and Indigenous participation in assessment process
  • Continued strong oversight for pipeline safety and environmental protection
Slide 5 speaking notes (click to view)

I’ve already mentioned that the federal government has introduced legislation to modernize the National Energy Board and transition it to a new organization named the Canadian Energy Regulator.

It has been the biggest legislative change to the NEB since it was established in 1959. And I am pleased to say that it will provide much needed clarity for us, as we go forward.

Modern Governance

One of the biggest changes is the new Governance model proposed for the Canadian Energy Regulator. The new model will have a more conventional corporate-style governance board with an independent group of hearing commissioners.

It is my hope that this change will help make the organization:

  • more accountable;
  • more predictable in ensuring its systematic performance; and
  • it will raise the bar as we pursue our goal of regulatory excellence.

The new structure also ensures hearing commissioners are independent of governance of the organization and completely focused on pipeline adjudication matters. The new governance model – including the separation of roles for the Chair of the Governance Board, Lead Hearing Commissioner, and CEO disentangles the inherent conflicts between the various roles.

It also enables:

  • the Minister to proactively interact with the Board – but not the Hearing Commissioners;
  • the Governance Board to proactively engage with the Minister, key stakeholders, and staff; and
  • enables the CEO to lead the organization properly, without fear of conflict of interest for introducing bias into adjudication processes.

System-wide focus on regional and cumulative effects

The overall project assessment system will also benefit from a proactive focus on regional and cumulative effects.

This proposed new system will focus on:

  • Proactive strategic and regional assessments that would evaluate big-picture issues, like climate change, biodiversity, and species at risk.
  • It would also examine the cumulative effects of development and provide context for individual impact assessments.
  • This should lead to more focused assessment in certain areas, and coordinated monitoring of critical issues by all parties involved.

The CER will also work in partnership with the new Impact Assessment Agency of Canada – who will lead and steward all federal reviews of major projects.

More public engagement and Indigenous participation in assessment process

Modernization will also bring a renewed and proactive emphasis on engagement with Indigenous Peoples earlier in the planning phase of projects – and at the front end of regulatory processes.

And lastly, there will continue to be strong oversight of pipeline safety and environmental protection

Canadians are increasingly interested in how energy projects are regulated throughout their lifecycle – from the initial design and construction, to the operation and eventual winding down of new resource projects. Our commitment to safety and environmental protection is unwavering and will benefit from updating our legal framework in a number of ways.

 

6. Five ways the NEB has been transforming

Five ways the NEB has been transforming
Slide 6 speaking notes (click to view)

Now, let me turn to what the NEB has been doing to prepare itself for the future.

Departmental Results Framework

To be truly modern, a regulator must be accountable and report on its performance transparently – good or bad. Last year, the Board became an early adopter of the Government of Canada’s updated Policy on Results, known as the Departmental Results Framework (DRF). The DRF outlines our four core responsibilities (Energy Adjudication, Safety and Environment Oversight, Energy Information, and Engagement). It also establishes a suite of publicly reportable performance metrics for each core responsibility. We will begin reporting against this framework at the end of this fiscal year.

Management Systems

We require our regulated companies to have strong management systems in place and we have applied that thinking to our own internal workings. Our Management System, which we developed and began implementing in 2016, provides clear, appropriate core business processes for governance, business planning, performance assessment, and management of change on performance improvements to enable the organization to deliver the outcomes described in our DRF – rather than just a series of transactions over time. Relentless focus on organizational improvement is imbedded in our Management System by continually enforcing the “Plan, Do, Check and Adjust” cycle in everything we do. This focus is something that is often lacking in government and public bodies – as they lurch from issue to issue. By committing to a management system approach, and transparently reporting against our Results Framework – we aspire to excellence in our operations, and reject a transaction-based approach.

Accessible data and energy information

Another way we hope to improve public trust is through our focus on providing Canadians with access to our core data sets and unbiased factual energy and pipeline information. We believe that by giving the public the information that we have – and they need; they can dig into the data, come to their own conclusions, and be better at challenging our performance – rather than just accepting the NEB’s word for it. And as part of our efforts to support energy conversations, we have introduced a number of innovative information products.

These include:

  • interactive pipeline safety map and pipeline performance dashboard;
  • energy market snapshots (which provide short informative primers on energy issues every week); and
  • interactive energy futures data visualizations.

Comprehensive engagement with stakeholders

Over the past few years at the NEB, one of the main things we have learned is that we need to engage Indigenous Peoples, stakeholders, affected landowners, and the public much more effectively in order to sustain trust from Canadians. We have found that comprehensive engagement leads to better outcomes, and doesn’t need to conflict with ensuring fairness to all parties in an adjudication setting. For example, early engagement with stakeholders in advance of an assessment or adjudication process can influence the shaping of the scope and design of the adjudication process that is then delivered fairly to all affected interests. We have also learned that we can utilize comprehensive engagement and consensus-based processes to influence the development of regulatory standards and policies that are then utilized in regulatory oversight.

Safety Culture

Fostering and supporting a culture of safety within the industry we regulate is an emerging area for us and another means by which the NEB is focused on excellence. The focus on safety culture has a long history in some industries, the airline industry is a good example. But our industry has only in recent years, begun to focus on and address safety culture. At its core, safety culture is the attitudes, norms, values, and beliefs which a particular group of people share with respect to risk and safety. A strong safety culture scrutinizes – as a normal business function – every decision it makes to ensure that risks are managed appropriately.

 

7. Preventing Harm

Preventing Harm
Slide 7 speaking notes (click to view)

In terms of being proactive and preventing harm – a positive Safety Culture is the ultimate defense. It holds the promise of moving a company well beyond compliance with standards, and facilitating systemic influence on Safety performance.

As we seek to positively influence industry’s safety culture, we must also consider how our own organizational values affect our decision-making and behaviors. For this reason, we have begun efforts to understand and evaluate our own internal culture for regulatory oversight.

 

8. Focusing on Results: Adapting to an Evolving Context

  • Energy regulators can contribute to build public confidence by:
    • Leading the way in regulatory excellence
    • Demonstrating our performance to Canadians
    • Building and influencing a strong safety culture both internally and across regulated companies
Slide 8 speaking notes (click to view)

Just as energy systems change and evolve, so do ways of regulating and ensuring accountability to Canadians. It’s a continuing story. And the NEB has been working on issues that have been around for the last 50 years. And we will continue to work on them…for very likely…the next 50 years.

We believe in a strong regulatory presence for the good of all Canadians, and you can see evidence of that through our:

  • internal transformation efforts;
  • adoption of a results-based performance framework;
  • management systems implementation;
  • accessible data and energy information;
  • comprehensive engagement with stakeholders; and
  • our focus on safety culture.

I believe these initiatives will serve the NEB, the new Canadian Energy Regulator, and ultimately all Canadians well in the future.

Thank you.

 

www.neb-one.gc.ca

1-800-899-1265

@NEBCanada

@ONE_NEBCanada

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