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Section I : Overview

1.1 Chairman’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, 2007.

The NEB’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 economic efficiency 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 exports. In addition, we monitor and report to the government, 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.

To set the context, approximately $110 billion of natural gas, natural gas liquids, crude oil, petroleum products and electricity were transported by NEB-regulated pipelines and power lines to Canadian energy users and markets outside of Canada in 2006. The cost of providing transportation services for these commodities was estimated to be around $4.7 billion in 2006, not including fuel costs paid by shippers on natural gas pipelines. This remarkable feat was accomplished by infrastructure that is mostly invisible to consumers and that operates with an extremely low rate of failure and minimal environmental impact. The Board’s role as a regulatory agency is to help create a framework that allows these economic activities to proceed in an efficient manner when they are in the public interest.

The Board follows a strategic planning process that establishes priorities to enable us to meet our mandate. In the current environment of increasing global energy demand for safe and secure supplies of energy and high energy prices, the NEB’s role as Canada’s national energy regulator is as important as ever. At the same time, we are challenged to maintain a skilled and knowledgeable workforce in a competitive employment market. The Board identified three priority areas to address these challenges in 2006-2007: improving the regulatory framework, informing the energy policy debate, and enhancing NEB capacity and culture. I am proud to say that we were able to address many aspects of these challenges due to the significant efforts and dedication of our staff and the members of our Board.

We followed an ambitious improvement agenda in 2006-2007. Highlights of activities designed to improve the regulatory process include introducing internal quality systems improvements such as an integrated compliance approach to managing project applications, construction, operations and maintenance. We were able to move forward significantly on a one window approach for applications involving a hearing by obtaining agreement from the Minister of Environment to use the Canadian Environmental Assessment Act (CEA Act) substitution process on a pilot basis. The Minister approved the NEB hearing process as a substitute for a review panel process for the Brunswick Pipeline project application. This pilot enabled a timeframe that was significantly less than the majority of panel review projects and less than the joint panel reviews undertaken in the past. We made further progress in regulatory efficiency by streamlining the process for small pipeline applications and implementing an integrated risk-based approach to processing applications that resulted in reduced cycle times while maintaining the integrity of our review process.

We know that Canadians look to the NEB as a source of independent, reliable and timely energy information. This service which we provide to Canadians has become even more important in the current high-priced energy environment and with the increasing global energy demand for safe and secure supplies of energy. In 2006-2007 we enhanced our energy information program with published summer and winter outlooks, a popular energy pricing information website for consumers, and energy market assessments in key areas of supply and demand. We also engaged Canadians across the country in the development of our next Energy Futures report, to be published in the fall of 2007.

The foundation of all of these contributions to the regulation of energy markets and transportation in the Canadian public interest is our people. To support our current staff complement and to attract qualified individuals, we have been moving forward on our third priority, to enhance NEB capacity and culture. We have worked with Treasury Board to implement a unique market based allowance system and pay for performance. The pay for performance system is built on a balanced scorecard framework which includes high level metrics based on our Goals: the impact on the external world; major improvement initiatives – preparing for the future; and service standards – measuring the efficiency of our performance.

In a year with a high hearing workload, we continued to deliver high quality work. Our information technology services and human resources services were reliably delivered; our translation, document production, records, and mail were all handled smoothly and efficiently; all Board meetings, public hearings and external meetings with stakeholders in both official languages were well coordinated; and a high standard for legal advice was provided.

Canada is fortunate to have such an abundance of energy resources and since it was formed, the Board has taken pride in providing efficient and effective regulation that enables Canadians to benefit from these resources. Energy and energy issues will receive greater exposure during the next planning period and I am confident that the Board with its committed team of professionals is up to the challenge of ensuring that Canada’s endowment of energy resources continues to benefit all Canadians in a responsible and sustainable manner.

Gaétan Caron

Management Representation Statement

I submit for tabling in Parliament, the 2006-2007 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 2006-2007 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: Chairman Date:

1.2 Summary Information

1.2.1 Purpose

The National Energy Board’s purpose is to promote safety and security, environmental protection and economic efficiency 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 main functions of the NEB include regulating the construction and operation of pipelines that cross international or provincial borders, as well as tolls and tariffs on these facilities. Another key role is to regulate international power lines and designated interprovincial power lines. The NEB also regulates natural gas imports and exports, oil, natural gas liquids (NGL) and electricity exports, and some oil and gas exploration on Frontier lands, particularly in Canada’s North and certain offshore areas. Further, the NEB provides energy information by collecting and analyzing information about Canadian energy markets through regulatory processes and monitoring.

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. 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, established in 1959, is an independent agency guided by the principles of natural justice and procedural fairness. The NEB reports to Parliament through the Minister of Natural Resources. The Board’s regulatory decisions and the reasons for them are issued as public documents.

The NEB is 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 decommissioning and abandonment.

The Board’s mandate also 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). 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 provides 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 2006-2007 brought challenges and risks that influenced how it carried out its responsibilities and delivered results to Canadians. A number of important elements are described below.

Energy Overview

World energy prices continued to be high and volatile in 2006. Crude oil prices reached US$78.40 per barrel in July during intra-day trading and averaged US$66 for the year. Natural gas prices moved in the opposite direction, driven by above average levels of natural gas in storage and a lack of the hurricane-related disruptions which occurred in 2005. Prices in September fell to C$3.44/GJ, the lowest since 2002. Natural gas prices subsequently rebounded, closing the year at C$5.74/GJ. Energy prices are, in general, expected to remain at historically high levels.

The effect of high and volatile energy prices has led to an accelerated search for new sources of energy supplies from unconventional sources such as crude oil from the oil sands and wind-generated electricity projects. Electricity jurisdictions across Canada continue 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, but also to move beyond conventional sources.

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 2006-2007, much of the Board’s work involved addressing oil pipeline constraints and responding to the energy infrastructure development that is underway in response to growing oil sands production. As well, projects using new technologies and in non-traditional regions are raising new issues including addressing unique circumstances around liquefied natural gas (LNG), pipelining in permafrost, change of pipeline use and alternative integration evaluation.

Implications for the National Energy Board

The increased demand for energy infrastructure development was reflected in the increased number of major facility applications the Board was required to review in 2006-2007. Also, there were a significantly higher number of hearings before the Board when compared to previous years. The magnitude of the demand for new energy supplies and infrastructure is placing increasing demands on the NEB to be as efficient, clear and predictable as possible.

Regulatory Coordination, Efficiency and Effectiveness

In the context of increasing infrastructure project applications, the NEB continues to explore opportunities to optimize the existing regulatory framework. In particular, the NEB is working toward a “one project, one review” system. One means of achieving this is by using the substitution provision in the CEA Act. In 2006-2007, the Minister of Environment used this provision to substitute the NEB public hearing process for a CEA Agency review panel on a pilot basis, to assess the environmental effects of the Brunswick Pipeline application. The NEB is committed to working with the CEA Agency to evaluate that pilot and to implement the changes required to enable the NEB process to be substituted in all applications for NEB-regulated projects that would otherwise involve a CEA Agency panel review.

Although project-specific solutions within the existing legal and regulatory framework have been found, lasting solutions tend to take a long time to develop and are often complex. The regulatory framework in Canada faces many challenges with respect to streamlining and jurisdiction. These challenges often include unresolved broad public policy issues such as unsettled land claims, or longstanding social and economic issues, as well as challenges associated with navigating through federal/provincial process. Another challenge is the time involved in the examination of environmental issues; currently this takes more time in public hearings than all other issues combined. In addition, increasing landowner concerns regarding perceived issues around the number of pipelines, pipeline safety and compensation add to the picture of regulatory complexity.

The NEB continues to work within its own processes, and with others administering parallel and overlapping processes, to find ways to improve regulatory efficiency. To this end, the NEB continues to work to provide clear and predictable processes; meet performance measures and service standards; focus on goal-oriented regulation and risk-based assessment and compliance; and engage in dialogue with stakeholders with respect to implementing improved approaches.

Recruitment and Retention of Skilled Knowledge Workers

Maintaining the NEB’s regulatory capacity continues to be one of the Board’s highest priorities emerging from 2006-2007. To deliver on its expected results, the Board needs to recruit, develop and retain the technical and analytical expertise required. This is a significant challenge given the continuing high demand for expertise throughout the energy sector. As the demand for the technical skills tightens, the NEB finds that it is unable to compete with the responsiveness of the private sector in offering competitive wages and benefits. The Board continued to sustain significant attrition at the mid and senior levels due to industry’s active recruitment across the energy sector. The Board is also competing with the private and public sector for the scarce resources graduating from post secondary institutions. This staffing challenge is exacerbated by an aging demographic and a lack of experts within the job market. The NEB has worked to implement the new Public Service Employment Act and maximize related benefits; pilot a market-based allowance and pay for performance plan; enhance recruitment and retention, and leadership development; and improve rewards and recognition processes. However, attrition continues and further innovative approaches to ensure staff retention in the current market are required.

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 need to ensure that Canadians understand our volatile energy environment and that policy makers have access to independent, timely and objective energy information in order to make informed decisions. The NEB receives feedback throughout the year regarding the importance and timeliness of its energy information products and continues to work toward meeting our target audiences’ energy information needs.

1.2.5 Departmental Priorities

For 2006-2007, 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 2006-2007
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
37.9	43.4			44.5
Human Resources (Full-time equivalents)
Planned	Actual			Difference
305.1	305.26			+0.15
Departmental Priorities 2006-2007
Priority		Status on Performance	Planned Spending ($ millions)		Actual Spending ($ millions)
Regulatory framework		Successfully met	4.7		5.3
Energy information		Successfully met	1.9		2.1
Capacity and culture		Successfully met	1.3		1.5
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.
Link to Government of Canada Outcome Areas
The NEB contributes to the Government of Canada Outcome area of strong economic growth.

NEB Priorities in 2006-2007

For 2006-2007, the NEB identified three priority areas that required specific focus. Following is a summary of progress made on these priorities.

1. Improve the Regulatory Framework

Over the past year, the NEB was able to implement a number of improvements in its regulatory framework resulting in increased efficiencies, both in a planned manner and as opportunities arose. Through its quality management system, the NEB consolidated its regulatory framework to provide clarity on the “how” and “what” of its mandate and to create the basis for enabling ongoing improvements toward efficiency and responsive regulatory processes. Specific regulatory improvement initiatives included the NEB’s work with INAC and NRCan to bring a modernized regulatory framework to the North through developing potential amendments for the CPR Act and the COGO Act. NEB worked collaboratively with INAC and NRCan to develop common recommendation areas that will be moved forward for submission in 2007-2008. In addition, the Board continues to develop and implement goal-oriented regulation and to build and implement a risk-based integrated compliance system.

The NEB undertook a number of initiatives in 2006-2007 with the goal of enabling the public to more effectively participate in Board processes. To support the lead agency substitution option under the CEA Act, the NEB thoroughly reviewed options for participant funding and will be moving forward with a longer term plan to discuss options with related agencies and develop proposals that may involve legislative change. Through a northern engagement review, a needs assessment was conducted to determine best practices for developing regulatory processes resulting from applications in the North.

The NEB continues to put considerable effort toward streamlining regulatory processes with the options and tools available to it. In 2006-2007, the NEB was able to obtain substitution status under the CEA Act for the Brunswick Pipeline application. The NEB’s public hearing process was substituted for a panel review under the CEA Act. As the proponents had to work with just one lead regulatory agency in this case, the timeframe for the process was significantly less than for the joint panel reviews undertaken in the past. From the time of the application to the release of the Board’s decision, the process took twelve months.

2. Inform the Energy Policy Debate

Given the current high price energy environment, environmental concerns, and the need to develop new energy supply sources, Canadians in both the public and private sectors are engaging in discussion about energy issues and making choices about energy sources for the future. As a result, there is an increasing need to provide Canadians with reliable, timely and easily accessible information on Canadian energy. Through its regulatory mandate, the Board maintains expertise and knowledge about energy in Canada.

To address this priority, NEB enhanced its energy information program in 2006-2007 with both summer and winter energy market outlooks that provide Canadians information on energy supply and demand trends. The NEB also launched a news page on its Internet site entitled Energy Pricing Information for Canadian Consumers. This website provides Canadian consumers with information on the main energy commodities, including oil, natural gas, propane, butane and electricity, primarily with respect to pricing and factors affecting pricing. For background, information is also provided on how Canadian energy markets work, including a summary of each industry in Canada, frequently asked questions and helpful Web links, including those that provide pricing data. This section has proven to be popular and useful as it received over 16,000 visits since its inception in January 2006, and is increasingly referenced in the press and business reports.

As part of its energy information program, the NEB produced four energy market assessments in 2006-2007 to meet specific information needs in the areas of natural gas deliverability, natural gas for power generation, oil sands development and energy transportation. The NEB met with interest groups and stakeholders across Canada for input into the development of its Energy Futures report, to be released in 2007.

3. Enhance NEB capacity and culture

The rapid growth of the energy industry is expected to continue to 2020. With the costs and economic risks associated with pipeline construction, and with the requirement for environmental and regulatory assessments to develop and consider projects in the Canadian public interest, the need for a skilled, knowledgeable workforce is higher than ever. At the same time, the energy industry is actively competing for individuals with the same technical skill sets that the NEB requires. The NEB’s annual attrition rate has more than doubled from 7 percent in 2003 to 14.5 percent in 2006. More than half of these departures were fully trained, experienced employees drawn from the ranks of our professional engineers, inspectors, environmental specialists and market analysts. In Calgary’s current hot job market many of these professionals are in high demand and will remain so for the foreseeable future.

The NEB took specific steps in 2006-2007 to address the current challenges associated with recruiting and retaining staff. A capacity gap analysis was carried out to identify upcoming capacity gaps in key job families, as well as for bilingual capacity and appropriate representation. The NEB worked with Treasury Board to develop options for increasing recruitment and retention tools. A market comparison study was conducted to review the NEB’s wage structure with comparable job families in the private sector. The NEB then worked with Treasury Board and, in a very short period of time, was able to introduce 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 NEB continued to develop and implement its Quality Management System, which proves to be an invaluable tool in the current tight employment market. With the rate of staff turnover, in particular with the departure of experienced staff, the Quality Management System provides continuity, structure and training for the NEB’s key processes.

The NEB revised its human resources plan, the People Strategy, in 2006-2007, incorporating plans to address capacity gaps, build job families, and address bilingual and representation gaps.

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