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Section I : Overview

1.1 Chair’s Message

It is with pleasure that I present the National Energy Board’s (NEB or Board) Departmental Performance Report for the period ending March 31, 2008.

The National Energy Board’s 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’s purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade. The Board’s main responsibilities are the regulation of interprovincial and international gas, oil and commodity pipelines, international electric power lines and energy imports and exports. In addition, we monitor and report to Parliament, business and the public on the functioning of energy markets. The NEB also regulates the safety, environmental and conservation aspects of energy exploration and development on federal lands in the North and offshore areas where there are no specific accords or agreements with a province or territory.

As the NEB looks forward to celebrating 50 years serving the Canadian public, I am proud to say we continue to make decisions that fairly balance public safety, environmental interests and economic efficiency. Our role as a national regulator continues to gain significance in the face of increasing global energy demand for safe and secure energy supplies and high energy prices. In 2007-2008, the NEB continued to be challenged in maintaining a skilled and knowledgeable workforce in a competitive employment market. The committed efforts of both our staff and the Board Members enabled the NEB to manage a heavy hearing workload. We identified three priority areas which guided our work in 2007-2008: improving regulatory processes, enhancing NEB capacity and culture, and informing Canadians on energy markets. I am pleased to report that we successfully delivered on these priorities.

We also continue to improve our regulatory processes. We launched the Land Matters Consultation Initiative, an innovative method of outreach. The initiative is aimed at improving company interactions with landowners; improving the accessibility of NEB processes; and addressing both the financial and technical aspects of pipeline abandonment.

The NEB achieved a major milestone in 2007-2008 through our continuing development of an Online Application System for small pipelines. The system, which went live in June 2008, employs a simplified assessment process for low-risk facility applications. This approach not only reduces the time required for regulatory decisions but also reduces industry’s application costs and allows the NEB to focus its resources on high value-added work.

The NEB continues to be committed to increasing clarity and predictability through service standards for all key services. The implementation of the risk-based lifecycle approach has enabled the Board to improve application cycle times. In 2007-2008, the NEB processed several pipeline applications for major additions of oil pipeline capacity, including the Keystone, Clipper and Southern Lights applications. Also, we have provided safety and environmental oversight through inspections of new pipelines and activities, as well as compliance activities on operating pipelines and facilities. Despite the challenge to our staff capacity, we were able to meet our strategic goals.

Partnership is a key component in effective regulation. As part of our improvement agenda, we have worked closely over the past year with the Major Projects Management Office, Northern Boards and Natural Resources Canada, in an effort to streamline regulatory processes and learn from each other’s best practices and experience.

The current high-priced energy environment made our priority to inform Canadians on energy markets highly relevant with last year. The report on Canada’s Energy Future, which presents a comprehensive outlook of energy supply and demand for the years 2005 to 2030, reassures Canadians that we have abundant energy resources, while encouraging all of us to make smarter energy choices. Canadians continue to look to the NEB for objective, accurate and timely information about Canada’s energy sector. We continue to provide expert analysis via our seasonal energy outlooks, energy market assessments, energy overviews and energy pricing commentaries. These products are highly valued by Canadians, as evidenced by large and continually growing use of the NEB’s website.

Modernizing our regulatory framework and continuing to respond to Canadians’ need for energy market information could not be accomplished without a dedicated, expert organization of individuals. Enhancing NEB capacity and culture continues to be critical in delivering on all of our initiatives and we are committed to attracting and retaining qualified staff. During the year, the NEB received additional funds from Treasury Board to address our projected increased workload and accompanying requirement for skilled technical staff. In addition to the assistance we received from Treasury Board, we introduced several attraction and retention initiatives: we updated our telework policy; revitalized our Rewards and Recognition program and leadership and project management training; and, we introduced an employee-based Talent Team at the NEB to assist in attracting new staff.

The team of highly qualified people who work at the NEB remains up to the challenge of ensuring that Canada’s energy sector continues to benefit all Canadians in a responsible and sustainable manner. The successes identified in this report are theirs. I wish to thank each and every one of them for their dedication to continually improving the lives of Canadians.

Gaétan Caron
Chair and CEO

Management Representation Statement

I submit for tabling in Parliament, the 2007-2008 Departmental Performance Report for the National Energy Board. This document has been prepared based on the reporting principles contained in the Guide for the Preparation of Part III of the 2007-2008 Estimates: Reports on Plans and Priorities and Departmental Performance Reports: It adheres to the specific reporting requirements outlined in the Treasury Board Secretariat guidance. It is based on the department’s approved Strategic Outcome(s) and Program Activity Architecture that were approved by the Treasury Board. It presents consistent, comprehensive, balanced and reliable information. It provides a basis of accountability for the results achieved with the resources and authorities entrusted to it. It reports finances based on approved numbers from the Estimates and the Public Accounts of Canada. Name: Gaétan Caron Title: Chair and CEO Date:

1.2 Summary Information

1.2.1 Purpose

The National Energy Board’s purpose is to promote safety and security, environmental protection and efficient energy infrastructure in the Canadian public interest1 within the mandate set by Parliament in the regulation of pipelines, energy development and trade.

1.2.2 Vision

The NEB is an active, effective and knowledgeable partner in the responsible development of Canada’s energy sector for the benefit of Canadians.

1.2.3 Mandate and Regulatory Context

The NEB is an independent federal agency that regulates several aspects of Canada’s energy industry. Its purpose is to promote safety and security, environmental protection and economic efficiency in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade. The NEB regulates the construction and operation of pipelines that cross international or provincial borders, tolls and tariffs on these pipelines, international power lines and designated interprovincial power lines. The NEB also regulates natural gas imports and exports, oil and natural gas liquid exports, electricity exports, and some oil and gas exploration on frontier lands, particularly in Canada’s North and certain offshore areas. Finally, the NEB provides Canadians with information about Canadian energy markets.

The main functions of the NEB are established in the National Energy Board Act (NEB Act). The Board has additional regulatory responsibilities under the Canada Oil and Gas Operations Act (COGO Act) and under certain provisions of the Canada Petroleum Resources Act (CPR Act) for oil and gas exploration and activities on frontier lands not otherwise regulated under joint federal/provincial accords.

The NEB, established in 1959, is an independent regulatory tribunal guided by the principles of natural justice and procedural fairness. The NEB reports to Parliament through the Minister of Natural Resources. The Board is a court of record and has certain powers of a superior court of record including those for attendance, swearing and examination of witnesses, the production and inspection of documents, the enforcement of its orders and the inspection of property. The Board’s regulatory decisions and the reasons for them are issued as public documents.

The NEB’s regulatory responsibilities for public safety, security, protection of the environment and economic efficiency are set out in the NEB Act and the COGO Act. The NEB is also required to meet the requirements of the Canadian Environmental Assessment Act (CEA Act) and the Mackenzie Valley Resource Management Act. The NEB ensures that regulated companies are safe, secure and environmentally responsible by assessing applications and verifying compliance with statutes, decisions, and regulations throughout their lifecycle. Through the Public Safety Act, 2002 (Bill C-7) the NEB has legislative authority for the security of pipelines and international power lines. In addition, Board inspectors may be appointed Health and Safety officers by the Minister of Labour to administer Part II of the Canada Labour Code as it applies to facilities regulated by the Board.

The Board’s mandate includes the provision of expert technical advice to the Canada-Newfoundland Offshore Petroleum Board, the Canada-Nova Scotia Offshore Petroleum Board, Natural Resources Canada (NRCan), and Indian and Northern Affairs Canada (INAC). Since devolution, the Board has a service agreement with the Yukon to provide technical advice. The Board may, on its own initiative, hold inquiries and conduct studies on specific energy matters as well as prepare reports for Parliament, the federal government and the general public. The NEB Act requires that the Board keep under review matters relating to all aspects of energy supply, production, development and trade that fall within the jurisdiction of the federal government. In addition, the Board provides advice and carries out studies and reports at the request of the Minister of Natural Resources.

Additional information on the background and operations of the NEB may be found at the Board’s Internet site: http://www.neb-one.gc.ca.

1.2.4 Operating Context

The environment in which the NEB operated in 2007-2008 presented challenges and risks that impacted how it carried out its responsibilities and delivered results to Canadians. A number of important elements are described below.

Energy Overview

In 2007, global energy markets were impacted by volatile prices for crude oil, while Canadian producers were impacted by escalating exploration and development costs. Crude oil prices reached US$110.21 per barrel in March 2008 and averaged US$72 in 2007. This increase was a result of global events and continuing strong oil demand growth in Asia and the Middle East. The depreciation of the U.S. dollar also contributed to the price rise, by making crude oil less expensive in other countries and this caused an influx of investment dollars to commodities, including crude oil. In 2007, North American natural gas prices were lower and less volatile than they have been in recent years as a result of a well supplied North American natural gas market. Warmer-than-normal weather during the winter of 2006-07 in North America, record U.S. imports of liquefied natural gas (LNG) during the summer of 2007, and increased natural gas production in several U.S. basins helped to maintain a very high inventory of natural gas in storage. As a result, North American natural gas prices at Henry Hub, the pricing point in Louisiana for natural gas traded on the New York Mercantile Exchange (NYMEX), ranged between US$6.00/MMBtu and US$8.00/MMBtu throughout the year.

The effect of high and volatile energy prices has led to continuing investment in the oil sands and has accelerated the search for new sources of energy supplies such as wind-generated electricity projects. Electricity jurisdictions across Canada continued to focus on adequacy of supply and operating reliability. In this regard, the trend has been to continue to develop generation sources such as fossil-fuelled generation, nuclear power and hydro electricity, and to move beyond conventional sources. New transmission projects are required within and between provinces with new international interconnections; a number of projects are either under development or proposed.

As these various energy projects are brought on stream, transmission systems must be modified to integrate them into the existing infrastructure. In particular, new oil pipelines need to be constructed. Through 2007-2008, much of the Board’s work involved the review of applications to address oil pipeline constraints in response to growing crude oil production from the oil sands and a resurgence of conventional crude oil production.

Implications for the National Energy Board

High oil prices stimulate development of oil resources such as the oil sands, and Canadian exports are growing, both of which contribute to increased efforts for the NEB as a national regulator. There are also significant time requirements for processing applications and providing regulatory oversight of new and operating pipelines and facilities to address safety, environment, economic, landowner, socio-economic and Aboriginal issues. Landowners are taking a greater interest in pipeline application and development processes, and are communicating concerns to the NEB. All of this combines for greater public involvement in application review and more complex hearings.

Regulatory Coordination, Efficiency and Effectiveness

The challenge of increasing infrastructure project applications is compounded by an array of issues including safety, environment, Aboriginal concerns and socio-economic considerations. Additional factors are multiple regulators and jurisdictions that may be involved in various applications. At the same time that applications are increasing in complexity, our stakeholders are becoming increasingly informed and interested in regulatory decision-making which may affect their interests. Stakeholders are better informed, more knowledgeable and increasingly connected.

The October 2007 Speech from the Throne conveyed government direction to improve economic, social and environmental outcomes through resource development opportunities and improved federal processes. The government has introduced a number of initiatives reflecting this direction, including a Major Projects Management Office (MPMO). The goal of the MPMO, operated through Natural Resources Canada, is to improve coordination within Canada’s regulatory system by providing industry with a single, efficient point of entry into federal processes while ensuring that projects are built in a safe manner and the environment is protected. Applicants for federal energy projects will be required to file their applications with the MPMO, and it will have the responsibility for coordinating the federal regulatory process. The implications for how the NEB conducts business in association with the MPMO with respect to major energy projects will be a consideration going forward. In the short term, liaison with the MPMO is creating an extra demand on the Board’s resources.

In order to improve efficiencies, the NEB continues to work within its own mandate, while partnering with others administering parallel and overlapping processes. Our dialogue with stakeholders is critical to realizing improved regulatory approaches.

Recruitment and Retention of Skilled Knowledge Workers

Our need to recruit, develop and retain the technical and analytical expertise required to administer regulatory decisions and maintain appropriate oversight of operating pipelines and facilities persists as a challenge since the 2006-2007 fiscal year. The need to sustain regulatory capacity is complicated by the demand for the same expertise in other areas of the energy sector. The ability to compete with private industry for the same human resources has meant implementing non-traditional methods to attract and retain employees. The NEB experienced a turnover rate of 16.67% in 2007-2008. An aging demographic has further compounded the difficulties associated with losing mid and senior level workers who are often actively recruited from outside the organization.

Provision of Energy Information

Given the current high price energy environment and the need to develop new energy supply sources, Canadians in both the public and private sectors are required to make choices about energy sources for the future. There is a continued need to ensure the public understands our energy environment and that policy makers have access to independent, timely and objective energy information in order to make informed decisions. The NEB continually receives feedback confirming the importance and timeliness of its energy information products. We continue to work toward meeting our target audiences’ energy information needs.

1.2.5 Departmental Priorities

For 2007-2008, the NEB identified three priority areas that required specific focus and development. A summary of the status and resource allocation for each priority is provided in Table 1; a summary of progress made on these priorities follows.

Table 1: Summary Information Table

Plans and Priorities 2007-2008
Strategic Outcome: Safety, security, environmental protection and economic benefits through regulation of pipelines, power lines, trade and energy development within NEB jurisdiction.
Program Activity: Energy regulation and advice
Financial Resources ($ millions)
Planned Spending	Total Authorities			Actual Spending
38.1	47.3			43.8
Human Resources (Full-time equivalents)
Planned	Actual			Difference
307.6	293.09			-14.51
Departmental Priorities 2007-2008
Priority		Type	Status on Performance
Improve regulatory processes		Ongoing	Successfully met
Enhance NEB capacity and culture		Ongoing	Successfully met
Inform Canadians on energy markets		Ongoing	Successfully met
The results of the NEB’s Program Activity “Energy Regulation and Advice” are described in Section II Analysis of Program Activity, under the NEB’s Strategic Plan Goals.

NEB Priorities in 2007-2008

For 2007-2008, the NEB identified three priority areas that required specific focus. Following is a summary of progress made on these priorities.

1. Improve Regulatory Processes

In 2007-2008, the NEB continued work towards full implementation of a risk-based lifecycle approach. Risk-based lifecycle regulation has the following objectives:

• To determine and apply the level of appropriate NEB regulatory oversight based on risk within each phase of infrastructure lifecycle
• To base the level of regulatory oversight on company performance and risk factors related to safety, environmental protection, economic efficiency, and stakeholder engagement

The risk-based lifecycle approach applies to every interest area that the NEB has oversight for, including Safety, Environmental Protection, Integrity, Socio-Economics, Land Matters, Security, and Emergency Preparedness. Through this program, the performance of every company regulated by the NEB is assessed through a variety of tools to allow the Board to focus its limited resources on higher risk companies or projects. Tailored compliance plans are then developed for every regulated company to align regulatory effort on the highest priority areas. Audits and inspections are carried out for companies that pose the highest risk.

This year, the approach was applied in various pilot projects, particularly in the NEB’s assessment of section 58 applications and for all public interest areas. In addition, the NEB developed a draft plan for incorporating socio-economic and land matters into the risk-based lifecycle approach.

To further improve regulatory processes, the NEB implemented an application streamlining initiative in 2007-2008. The objectives of this initiative were:

• To streamline both the application requirements and the assessment process for low-risk pipeline facilities involving less than 40 kms of pipe while maintaining a desirable level of regulatory oversight
• To reduce unnecessary time, resources and complexity for both industry and the regulator on small, routine pipeline facilities
• To match application content to project complexity and risk and focus it on areas of concern

The resulting streamlined application process has a number of innovative features. The “point and click” web-based interface allows the applicant to apply on-line by answering a series of questions and committing to certain design, activity and filing requirements. The applicant confirms that low-risk criteria apply in a number of areas (safety, environment, socio-economic, consultation, commercial, etc.). Then, in the specific areas where there are issues or concerns, additional information is required and a further assessment is undertaken. Pilot projects commenced in the fall of 2007. The Online Application System went live in June 2008. The pilot projects to date have resulted in significant time and resource savings with no reduction in the effectiveness of regulatory oversight. The simplified process will also reduce industry’s application costs related to small pipelines.

The Land Matters Consultation Initiative (LMCI) is a significant step in the maturity of the risk-based lifecycle approach and has been incorporated into the program. The LMCI provides a forum for interested parties, primarily landowners, and the Board to explore options for the Board's review of land issues. Dialogue between parties improves all parties’ understanding of landowner matters and builds clearer communication between pipelines and landowners. LMCI consultations included over 400 participants with discussion focused on improvements to a range of existing regulatory tools.

The NEB’s development of harmonized environmental assessment processes in partnership with other agencies was carried out on a project-by-project basis in 2007-2008. This coordination continues to prove successful by minimizing duplication and streamlining environmental assessment reports. Fulfillment of our intention to reduce process uncertainty supports our continued pursuit of substitution as a way of doing business.

Our participation in bodies such as the Canadian Standards Association (CSA) has made it possible for the NEB to consult with industry and interested parties in identifying opportunities for improvement. For example, in partnership with the CSA, we continued development of a consensus standard on security management for the energy industry. The development of this standard is actively supported by affected stakeholders and work continues to be carried out on an accelerated schedule. Final publication of the standard is expected in 2009.

2. Enhance NEB Capacity and Culture

Given the current climate of increased hearing and compliance workloads and the corresponding need for modernized regulatory processes, the requirement for a skilled, knowledgeable workforce continues to be vital. The NEB’s turnover rate in 2007-2008 was 16.67%, up from 10% in 2006-2007, and 14.5% in 2005-2006. Calgary’s current job market, particularly in the energy sector, remained hot. The expert workforce the NEB relies on continues to be in high demand outside the organization, and will remain so for the foreseeable future.

In 2007-2008, the NEB took specific steps to address the current challenges associated with attracting and retaining staff. We continue to offer a key attraction and retention package that includes a market-based allowance structure for employees working in positions directly related to the energy sector, and a pilot pay-for-performance program for all employees.

The enhancement of NEB capacity and culture has necessitated innovations in recruitment and retention of employees. The introduction of a Talent Team, composed of NEB personnel, has assisted in proactive recruiting. This year, we also introduced a telework policy, enabling us to retain employees by offering added flexibility in the way they work. In addition to enhanced financial compensation and aggressive recruiting, we are focusing on making the NEB an attractive place to work. Our strategy here is to:

• Provide employees with appropriate work / life balance with considerable flexibility
• Provide support for professional development
• Continue to provide interesting work, matching employees’ interests with their work assignments to the extent possible

The NEB’s People Strategy incorporates strategies to address capacity gaps, build job families, and address bilingual and representation gaps.

3. Inform Canadians on Energy Markets

As crude oil and natural gas prices continued to fluctuate this year, the NEB continued to meet the Canadian public’s increased need for energy information. By collecting and analysing information about Canadian energy markets through regulatory processes and market monitoring, the NEB allows Canadians to understand the high price energy environment. Additionally, market monitoring enables policy makers to have access to independent, timely and objective energy information.

The Board’s suite of energy information is housed under the umbrella of the Energy Information Program. Canadians are informed via Energy Market Assessments, which provide detailed analyses into aspects of Canada’s energy system, briefing notes, public speeches and presentations by Board Members and senior staff, energy pricing information on the NEB website and semi-annual energy market outlooks. The NEB continues to hear that timely energy information is valuable.

The report, Canada’s Energy Future, was one of several Energy Market Assessments published this year; it is typically published every four years. The report is a study of Canada’s long-term energy supply and demand under various scenarios which integrated the analysis of energy sector markets into a single “all energy” market analysis and outlook. Post-release, the NEB conducted a well-attended national conference to further encourage discussion of the results published in the report. Both industry and the federal government rely on the NEB’s projections and this work is highly valued because it is objective, independent and reliable. The Canada’s Energy Future link on the NEB website received close to 40,000 visits in 2007-2008 and reflects the quality analysis conducted under the Energy Information Program.

1.2.6 Link to the Government of Canada Outcome Areas

The NEB contributes to the Government of Canada Outcome area of strong economic growth. Our Strategic Outcome is the provision of safety, security, environmental protection and economic benefits through regulation of pipelines, power lines, trade and energy development within NEB jurisdiction.

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