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Message from the Chair and CEO

In the quickly evolving economic climate, Canadians are responding with strategic approaches to energy choices. As outlined in its Report on Plans and Priorities for 2009-2010, the National Energy Board (NEB or Board) is positioned to provide the expert leadership required for regulation of infrastructure that meets the Canadian public interest.

The current environment includes uncertain and volatile financial markets, challenges in accessing energy supplies, increasing environmental concerns and growing public involvement in the development of energy infrastructure. At the same time, Canada’s energy infrastructure continues to develop in keeping with growing demand for energy by consumers. For example, expansion of the crude oil pipeline system is occurring with construction underway on Enbridge’s Alberta Clipper, Southern Lights and Line 4 Buildback projects and on TransCanada Pipeline’s Keystone project. Kinder Morgan’s Anchor Loop project was just recently completed. These expansions will allow increased exports and continue to add value to the Canadian economy. In this context, the NEB, within the mandate set by Parliament, has a critical role in promoting energy infrastructure which operates safely and with minimal environmental impact. The NEB also provides industry, policy makers and the public with objective, independent and timely information on Canada’s energy markets to assist in decision-making for energy infrastructure and markets.

In 2009-2010, the NEB will be focusing on working with industry to further promote safety and pipeline integrity through the sharing of information and effective reporting. The NEB must also address increasing stakeholder concerns so that the rights and interests of those affected by the development of energy infrastructure are respected, including landowners and Aboriginal people. The NEB is meeting these demands by enhancing its regulatory programs, and ensuring an experienced expert staff complement. An investment in the NEB’s information systems is required at this time in our goal of improving regulatory effectiveness and efficiency through a risk-based lifecycle management system and to make information essential to the investment in energy development in frontier areas more readily accessible.

Subject to a decision currently before the Board, commencing in 2009 the NEB may assume regulatory responsibility over certain pipelines and related facilities in Alberta currently under provincial jurisdiction. Depending on the Board’s decision, this has the potential to result in 50% more pipelines and related facilities requiring NEB regulatory oversight. To successfully implement these regulatory and systems enhancements, and to meet new and ongoing workload demands, the NEB will require additional resources, and is developing a proposal for the Treasury Board.

NEB processes are often part of broader regulatory processes; we continue to partner with other departments and agencies in order to promote regulatory efficiency and effectiveness, including improving the regulatory framework for the North.

As the Board continues to work hard to balance and integrate public safety, environmental interests and economic efficiency in arriving at decisions that are in the Canadian public interest, I am confident that Canadians will be able to make the best choices for the tremendous endowment of energy resources they possess.

Gaétan Caron
Chair and CEO

Section 1 - Agency Overview

1.1 Summary Information

Raison d’être

The NEB’s corporate purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest1within the mandate set by Parliament in the regulation of pipelines, energy development and trade.

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

Excellence at the NEB is driven by organizational and personal commitment to three key corporate values:

• Integrity: We are fair, transparent, and respectful
• Regulatory Leadership: We are responsive, proactive and innovative
• Accountability: We support and hold each other accountable to deliver timely, high quality results in the Canadian public interest

Responsibilities

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 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 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. In addition, the NEB provides Canadians with information about Canadian energy markets. The NEB reports to Parliament through the Minister of Natural Resources.

The main functions of the NEB, which was established in 1959, are set out 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. In addition, Board inspectors are 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 NEB’s regulatory responsibilities for public safety, security and protection of the environment 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 where the Board’s environmental responsibilities span three distinct phases: evaluating potential environmental effects of proposed projects; monitoring and enforcement of terms and conditions during and after construction; and monitoring and regulation of ongoing operations, including deactivation and abandonment. Through the Public Safety Act, 2002 (Bill C-7) the NEB has legislative authority for the security of pipelines and international power lines.

The NEB is an independent regulatory tribunal guided by the principles of natural justice and procedural fairness. 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 generally issued as public documents.

Strategic Outcome

In order to effectively achieve its purpose, the NEB strives to achieve the following strategic outcome:

Safe and secure pipelines and power lines built and operated in a manner that protects the environment and enables efficient markets.

Program Activity Architecture

The chart below illustrates the NEB’s framework of program activities and sub-activities through which the Board works toward achieving its Strategic Outcome.

Program Activity Architecture Crosswalk

The NEB modified its Program Activity Architecture (PAA) to meet Treasury Board requirements; the revised PAA was approved by Treasury Board in 2008. The table below describes the changes and why the modifications were necessary.

	Previous Title	Revised Title(s)	Rationale for Modification
Strategic Outcome	Safety, security, environmental protection and economic benefits through regulation of pipelines, power lines, trade and energy development within the National Energy Board’s jurisdiction.	Safe and secure pipelines and power lines built and operated in a manner that protects the environment and enables efficient markets.	The changes in the Strategic Outcome statement were made to meet Treasury Board requirements regarding clarity, being long-term and enduring in nature, measurability, representation of an end-state, and existing at an appropriate level for the organization.
Program Activity	Energy Regulation and Advice	Energy Regulation Energy Information	The NEB’s single program activity was split into two major programs: Energy Regulation and Energy Information. The changes in the PAA framework are based on Treasury Board requirements regarding intended impacts, clear governance, unique expected results, unique performance indicators and reportability as a unique element.
	Internal Services	No change	No change

The table below illustrates the redistribution of financial resources in fiscal year 2009-10 as a result of the PAA changes:

	Previous Title	Financial Resources (million $)	Revised Title(s)	Redistribution of Financial Resources (million $)
Program Activity	Energy Regulation and Advice	44.4	Energy Regulation Program	20.7
			Energy Information Program	7.3
			Internal Services	16.4

1.2 Planning Summary

Financial Resources and Human Resources

	2009-2010	2010-2011	2011-2012
Financial Resources (million $)	44.4	36.7	36.7
Human Resources (Full Time Equivalents)	347.6	296.6	296.6

The financial and human resources table above provides a summary of total planned spending for next three fiscal years.

The figures in this table are from the NEB’s current Main Estimates. Additional funding made available through the NEB’s 2007 Treasury Board submission ends for 2010-2011. The NEB will be presenting a business case to Treasury Board in 2009 for resources to meet ongoing workload pressures past 2010, as discussed in the Expenditure Profile section.

Planning Summary

Strategic Outcome 1: Safe and secure pipelines and power lines built and operated in a manner that protects the environment and enables efficient markets.

Performance Indicators	Targets
Frequency of disabling injuries and pipeline failures	0 disabling injuries and 0 pipeline failures; assessed via reported incidents and year by year improvement
Frequency of major releases into the environment (Major release = greater than 100 m3 of liquid hydrocarbon)	0 releases; assessed via reported incidents and year by year improvement
Canadian energy and transportation markets are working well	Adequate oil and natural gas pipeline capacity in place; similar Canadian and US energy markets have equivalent pricing; pipeline companies provide services which meet the needs of shippers

Program Activity	Expected Results	Forecast Spending (million $) 2008-09	Planned Spending (million $)			Alignment to Government of Canada Outcomes
			2009-10	2010-11	2011-12
Energy Regulation	NEB-regulated facilities and activities are safe and secure, and are perceived to be so NEB-regulated facilities are built and operated in a manner that protects the environment Canadians benefit from efficient energy infrastructure and markets The rights and interests of those affected by NEB-regulated facilities and activities are respected	47.4	32.8	27.0	27.0	Strong economic growth
Energy Information	Canadians benefit from efficient energy infrastructure and markets	NA	11.6	9.7	9.7
Total			47.4	44.4	36.7	36.7

Contribution of Priorities to Strategic Outcome

Operational Priorities

Priorities	Type	Link to Strategic Outcome	Description
Demand for new and enhanced regulatory programs	New	SO-1	In order to be able to continue to meet its purpose, the NEB is working to meet the demand for new and enhanced regulatory programs by: Extending the NEB’s risk-based lifecycle management system that is in place for safety, security and protecting the environment to encompass the rights and interests of those affected by NEB-regulated facilities and activities, and toll and tariff regulation. The rights and interests program will be based on the outcomes from the NEB’s Land Matters Consultation Initiative (LMCI) conducted in 2008-2009.* Providing an enhanced Aboriginal engagement program in order to enable effective participation in NEB processes and to contribute to the federal government’s obligations.* Improving the legislative framework in the North by working with partners including Indian and Northern Affairs Canada (INAC) and Natural Resources Canada (NRCan) to update the COGO and CPR Acts.
Improve regulatory processes	Previously committed to	SO-1	In order to ensure that the NEB’s regulatory processes are effective and efficient, the NEB is committed to the following initiatives: Promoting safety and integrity through sharing of information, effective reporting and clarification of expectations of safety and pipeline integrity programs. Continuing to update and modernize regulations and streamlining regulatory processes where possible. Continuing to implement the risk-based lifecycle management system.
Build partnerships for regulatory efficiency and effectiveness	Previously committed to	SO-1	Building partnerships with other organizations and stakeholders is a key factor in achieving improved regulatory efficiency and effectiveness. The NEB will continue to build more effective partnerships through initiatives such as: Focusing efforts to build partnerships and coordinate with departments that work directly with the NEB, including NRCan, the Major Projects Management Office, the Canadian Environmental Assessment Agency (CEA Agency), and INAC. Partnering with federal, provincial and territorial regulators to provide technical expertise, and to streamline regulatory processes to meet common objectives.
Effective engagement in NEB processes	Previously committed to	SO-1	Through LMCI, input was received relating to policy matters within the mandate of NRCan, including participant funding. If NRCan decided to pursue this item, then the NEB would work with NRCan to assess, and, if appropriate, implement any changes with respect to participant funding.
* Implementation is dependent on NEB request for funding to Treasury Board for 2010 onward (to be submitted in 2009); details are contained in Expenditure Profile section.

 

Management Priorities

Priorities	Type	Link to Strategic Outcome	Description
Employee planning and development	Previously committed to	SO-1	Considerable expertise is required throughout the organization to carry out the NEB’s mandate. A high level of activity and new and more complex projects combined with a competitive labour market has made it challenging for the NEB to attract and retain its employees while maintaining knowledge within the organization. The following initiatives are being undertaken to meet this priority: Completing the implementation of a learning and development framework to facilitate employee learning and retention. Ensuring appropriate resources are in place to support knowledge transfer and organizational improvement.
Improved corporate effectiveness	Previously committed to	SO-1	The NEB is working to improve a number of corporate processes that will help to achieve organizational efficiencies by: Improving financial management (the 2008 Management Accountability Framework (MAF) assessment identified that financial management could be improved). Financial processes will be reviewed and incorporated into the NEB’s Quality Management System and work will be undertaken to align financial processes with planning and reporting processes. Enhancing security and business continuity (the 2008 MAF assessment identified this as an area for improvement). In 2009-2010, a business continuity plan will be implemented. Integrating quality management principles throughout the organization by increasing staff engagement, completing process documentation, practicing continual improvement and improving executive oversight of the Quality Management System.
Improved information management	Previously committed to	SO-1	Information systems improvements are required in order to regulate effectively in line with the Board’s risk-based approach as well as to efficiently manage program records. Initiatives that will be undertaken to address this priority include: Implementing information management renewal. Various systems require updating or replacing to support program activities and corporate effectiveness. Developing a company information system to manage data being generated from other information management tools (in support of a risk-based lifecycle approach to the regulation of energy infrastructure).* Converting Frontier Information Office microfiche holdings to a web-based digital format in order to make this information accessible to clients; required to make information essential to energy development in the North more readily accessible.* Converting essential records to digital format.*
* Implementation is dependent on NEB request for funding to Treasury Board for 2010 onward (to be submitted in 2009); details are contained in Expenditure Profile section.

Risk Analysis

In establishing priorities for 2009-2010, the NEB considered societal and industry trends that might influence how it carries out its responsibilities and delivers results to Canadians.

• Volatility of energy markets: Energy price fluctuations and financial turmoil over the last year are creating considerable economic uncertainty in Canada and internationally. Such volatility creates uncertainty for energy infrastructure development and, consequently, for the pace of pipeline development to connect those resources with markets.
• Development of new supply sources and access to supplies: Despite recent economic weakness, global energy demand will continue to grow in the long term, particularly in rapidly developing countries. Conventional petroleum regions are challenged to maintain or increase their level of production. This has contributed to exploration and development moving into unconventional production (oil sands, shale, coalbed methane) and to more remote areas, including northern British Columbia, the Mackenzie Delta, the Beaufort Sea and the Arctic Islands. This creates particular challenges with engagement needs, unique environmental issues, the need for coordination with other regulators and the need to keep pace with advanced technologies as more complex projects emerge. A solid regulatory system will be needed to evaluate, and if necessary, develop these important resources in a safe and environmentally responsible way.
• Pipeline capacity development: A pipeline construction boom has developed over the past two years, and is expected to continue at a reduced pace in the face of current economic uncertainties. Although oil prices have fallen, and a number of plans for new projects are being reconsidered, there are oil sands projects still under construction that will be completed in the next few years. Major oil pipelines under construction include Keystone and Alberta Clipper, Southern Lights and the Line 4 Buildback, and this is generating a substantial amount of work for the NEB. On June 17, 2008, TransCanada Pipelines Limited (TransCanada) filed an application with the Board requesting that its pipeline system, NOVA Gas Transmission Ltd., be declared under federal jurisdiction and that the Board issue a Certificate of Public Convenience and Necessity for it under section 52 of the NEB Act. The Board decided to conduct a public hearing process to respond to TransCanada’s application; the hearing was held in November 2008. There could be a considerable impact on the NEB depending on the decision made in this proceeding, including a number of complex toll hearings. In summary, there remains considerable pressure on regulators, proponents, and contractors necessary to bring approved pipelines into service.
• Pressure on labour and capital: A global boom in infrastructure development and changing demographics has been putting upward pressure on the costs of equipment, materials and labour. The labour market remains very competitive, and not only is the NEB challenged to hire and train qualified personnel, these pressures also affect the quality of work undertaken by the companies it regulates. These pressures have been easing somewhat due to the economic downturn but are still high from a historical vantage point.
• Environmental concerns: Environmental concerns around potential pipeline projects, and in particular, on the oil sands have become top-of-mind issues for Canadians. Environmental Non-Governmental Organizations (ENGOs) have been very effective in engaging the public in a debate on these issues. Representatives of government, regulators, producers and ENGOs have all recently expressed a need for reliable, unbiased and timely information to inform the public debate on energy and environmental issues and see the NEB as able to play a role in providing independent and solid information. Compounding the uncertainty with respect to oil sands development are fragmented climate change policies in Canada. Oil sands operators and others are calling for integration and coordination of environmental and energy policies and coherence at a national and continental level.
• Growing public involvement: Since the mid-1990s citizen involvement in energy infrastructure development has been growing, whether by landowners, ENGOs, communities or Aboriginal groups. This has been spurred by many factors including an increased awareness of safety, security and environmental issues; increasing demand for energy infrastructure; a greater desire for energy information; and uncertainty around facility abandonment. Aboriginal peoples are to a growing degree involved in proceedings before the Board and their expectations are increasing as the understanding of Aboriginal rights is changing.

Canada’s federally regulated pipeline and power line system transports over $100 billion of energy every year in a safe, environmentally sound and economically efficient manner. However, safety and maintaining the physical integrity of pipelines in the industry are concerns as infrastructure ages and industry is challenged to attract and retain experienced staff. The NEB must continue to communicate its expectations on safety to industry and develop appropriate leading safety indicators and ensure transparent reporting and communication by industry to promote a culture of safety within the industry. In addition, the NEB will need to keep informed of new technology and methods being used in remote areas and unconventional production in order to effectively set expectations and monitor safety performance.

There is a need to update regulations under which the NEB operates. A number of regulations, including the Onshore Pipeline Regulations, require updating to reflect learnings since 1999 regarding gaps or lack of clarity; others, such as the COGO Act and CPR Act need to be modernized in order to provide adequate regulatory oversight for increased exploration and production in Canada’s frontiers. The NEB also needs to further clarify goal oriented regulation and the risk-based lifecycle approach with industry and other interested parties.

The NEB will have significantly higher expectations placed upon it for public engagement activities. For example, many landowners have expressed concern regarding the impact of pipeline development near or on their land. In the area of Aboriginal engagement, court decisions have furthered the understanding of the obligation of the Crown to consult with Aboriginal people but there is work yet to be completed so that Aboriginal people, project proponents, governments and regulators better understand their respective roles and their contributions to solutions. The success of Crown consultation as coordinated through the Major Projects Management Office will partly depend on the effectiveness of the NEB’s Aboriginal engagement work as well as that of the NEB hearing process itself.

At their best, the NEB’s processes enhance trust and understanding among parties and result in agreement that the process was fair. However, the NEB could face eroding trust in its processes if it is unable to deal effectively with new issues, demands and opportunities. The NEB will need to be proactive in its understanding of issues and new activities, partner effectively with other regulators, the CEA Agency and the Major Projects Management Office, and improve public understanding and awareness of the NEB’s role and actions.

Capacity and retention of expert knowledge within the NEB are also of concern. Considerable staff expertise is required to carry out the NEB’s mandate, and it is challenging to hire and retain staff with current labour market and demographic trends. In addition, changing development trends and new energy technologies require continuous staff education to ensure that the NEB has the appropriate expertise to effectively regulate the industry.

Expenditure Profile

Over 90 percent of the NEB’s costs are recovered from the regulated industry. The NEB Act authorizes the Board to charge those companies it regulates costs attributable to the NEB’s operations in carrying out its related responsibilities. This process is managed through the Cost Recovery Regulations under the NEB Act. The NEB’s financial statements, anticipated expenditures and performance results are presented to the Cost Recovery Liaison Committee, made up of industry’s major associations and companies, at regularly scheduled meetings.

In 2007, the NEB submitted a request to Treasury Board for funding to address increased industry activity over the period 2007-2010; this request was fully funded. Due to a sustained and continued requirement for resources to meet workload demand linked to industry activity and other emerging trends, the NEB has assessed that it will require the increase in allocation to be maintained beyond 2010, and will be presenting a business case to Treasury Board to this effect in 2009.

For two priority areas for 2009-2010, the NEB has submitted requests to Treasury Board for funds in order to successfully meet commitments. Under the Operational Priorities, for new and expanded regulatory programs, additional resources are required to implement the land matters regulatory program and enhanced Aboriginal engagement. Under the Management Priorities, for enhanced information management and renewal, resources are required to develop the company information system for the NEB’s risk-based lifecycle management system, and to convert the Frontier Information Office microfiche holdings and essential records to digital format. The latter is required to make information essential to energy development in the North more readily accessible to clients.

On June 17, 2008, TransCanada filed an application with the Board requesting that one of its pipeline systems, NOVA Gas Transmission Ltd., otherwise known as the TransCanada Alberta System, be declared under federal jurisdiction and that the Board issue a Certificate of Public Convenience and Necessity for it under section 52 of the NEB Act. The Board decided to conduct a public hearing process to respond to TransCanada’s application; the oral hearing was held in November 2008. Depending on what the decision is, there could be a considerable impact on the NEB. Should the Board determine that the TransCanada Alberta System falls within federal jurisdiction and issue a Certificate, approximately 23,500 km of pipeline and associated compression and other facilities located in Alberta could be added to the roughly 45,000 km of pipeline currently regulated by the Board. This would represent a 50% increase in the amount of pipeline regulated by the NEB. Additional funds to provide regulatory oversight for this system, should it be decided that it falls under federal jurisdiction, will be sought through an application to the Treasury Board.

Spending Trend

(million $)	Forecast Spending 2008-2009	Planned Spending 2009-2010	Planned Spending 2010-2011	Planned Spending 2011-2012
Energy Regulation	46.2	20.7	17.3	17.3
Energy Information	NA	7.3	6.2	6.2
Internal Services	NA	16.4	13.2	13.2
Total Planned Spending	47.4	44.4	36.7	36.7

In 2007, the NEB submitted a request to Treasury Board for funding to address increased industry activity over the period 2007-2010, and this request was full funded. Due to a sustained and continued requirement for resources to meet workload demand linked to industry activity and other emerging trends, the NEB has assessed that it will require an increase in allocation to be maintained after 2010, and will be presenting a business case to Treasury Board to this effect in 2009.

Voted and Statuory Items

Vote # or Statutory Item	Truncated Vote or Statutory Wording	2008-2009 Main Estimates (million $)	2008-2009 Main Estimates (million $)
30	Program Expenditures	41.0	39.4
(S)	Contributions to Employee Benefit Plans	5.2	5.0
Total		46.2	44.4

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