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Message from the Chair and CEO

I am pleased to present the National Energy Board’s 2008-2009 Departmental Performance Report (DPR).

This was a year of challenges and opportunities. It was an extremely busy pipeline construction year and the National Energy Board (NEB or Board) saw more applications and hearings than in any other year in the NEB’s 50-year history. The volume of construction activities contributed to an increase in safety incidents, which is a concern. To help better understand the factors that led to this increase, the NEB has been focusing its efforts on increased company compliance activities and industry outreach to help prevent, reduce and ultimately, eliminate these accidents in future. Furthermore, all of this activity took place during a year that will be remembered for extremely volatile global financial and energy markets.

Despite the challenges of high workloads and the uncertainty brought on by changing economic conditions, the NEB successfully delivered on its planned outcomes as outlined in its 2008-2009 Report on Plans and Priorities. The Board gave all facility applications thorough consideration, while still meeting or exceeding almost all of the NEB service standards for reviewing applications. Decisions continued to be guided by the basic principles of sustainable development, balancing the environmental, economic and social considerations that matter to Canadians. The NEB was also ready with timely energy information for the changing market conditions and released a broad suite of energy information products to meet Canadians’ needs.

Improving regulatory processes through innovation and partnerships with other agencies and stakeholders was a strong focus during 2008-2009. By partnering with the Major Project Management Office and other federal agencies and stakeholders, the NEB has achieved a more coordinated and efficient approach to the federal regulatory review process. As a result of this work, the Board developed and began implementing a new model for Aboriginal Engagement in 2008-2009.

The NEB continued to develop partnerships with northern bodies such as the NWT Board Forum, and signed a memorandum of understanding (MOU) with the Northwest Territories Water Board in August, 2008. It also signed a MOU with the First Nations Tax Commission to establish a framework for learning and sharing information with each other. In addition, the NEB began to engage Environmental Non-Government Organizations so that it could explore ways to improve the environmental outcomes associated with NEB-regulated projects. Through the Land Matters Consultation Initiative, the NEB also engaged more than 400 citizens from across Canada to share ideas on how to improve the way land matters are incorporated into the Board’s public interest considerations.

As a result of two weeks of public hearings in November 2008, the NEB assumed jurisdiction over TransCanada’s Alberta system on April 29, 2009, an addition of nearly 25,000 km of pipeline. Although this was a 50 per cent increase in the length of pipelines regulated by the NEB, the NEB assumed these responsibilities in an efficient and effective manner.

During 2008-09, the NEB launched activities to celebrate the Board’s five decades of regulatory leadership in Canada. While much has changed since 1959, the Board’s original promise to Canadians remains the same: the NEB is an active, effective and knowledgeable partner in the responsible development of Canada’s energy sector for the benefit of Canadians.

The Board will continue to promote safe, secure and economically efficient energy infrastructure that is built and operated in a manner that protects the environment. I am confident that the NEB will also continue to successfully pursue its mandate on behalf of Canadians, thanks to the knowledge, commitment and experience of its Board members and employees.

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 interest1 within the mandate set by Parliament in the regulation of pipelines, energy development and trade

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.

Excellence at the NEB is driven by its people’s commitment to three key 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 parts of Canada’s energy industry. 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, some 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 protecting the environment are set out in the NEB Act and the COGO Act. The NEB must also meet the requirements of the Canadian Environmental Assessment Act (CEA Act) and the Mackenzie Valley Resource Management Act. The Board’s environmental responsibilities span three distinct phases: evaluating potential environmental effects of proposed projects; monitoring and enforcing terms and conditions during and after construction; and monitoring and regulating ongoing operations, including deactivation and abandonment. Through the Public Safety Act, 2002 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. Aside from rare exceptions, the Board’s regulatory decisions and the accompanying Reasons for Decision are issued as public documents.

Strategic Outcome

The NEB strives to achieve the following strategic outcome in order to fulfill its purpose:

Safety, security, environmental protection and economic benefits through the regulation of pipelines, power lines, trade and energy development within NEB jurisdiction

Program Activity Architecture

The chart below illustrates the 2008-2009 NEB program framework.

1.2 Planning Summary

The financial and human resources table below provides a summary of total planned and actual spending and human resources for 2008-2009. The difference in planned and actual full-time equivalent (FTE) levels is partially due to challenges in hiring qualified candidates in a competitive labour market and staff attrition during the first half of 2008-2009. A number of factors contributed to the variance between planned and actual spending, and this is discussed in detail in the Expenditure section.

Financial and Human Resources

2008-09 Financial Resources ($ millions)			2008-09 Human Resources (FTEs)
Planned Spending	Total Authorities	Actual Spending	Planned	Actual	Difference
47.4	55.5	50.4	354.6	326.8	-27.8

($ millions)

Program Activity	Expected Results	2007-08 Actual Spending	2008-09				Alignment to Government of Canada Outcomes
			Main Estimates	Planned Spending	Total Authorities	Actual Spending
Energy Regulation and Advice	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 and respects the rights of those affected Canadians benefit from efficient energy infrastructure and markets The NEB fulfills its mandate with the benefit of effective public participation	43.8	46.2	47.4	55.0	50.4	Strong Economic Growth
Total		43.8	46.2	47.4	55.0	50.4

Strategic Outcome: Safety, security, environmental protection and economic benefits through the regulation of pipelines, power lines, trade and energy development within NEB jurisdiction

Performance Indicators	Targets	Performance Summary Status: Not Met, Somewhat Met, Mostly Met, Met All, Exceeded
Facilities and activities are safe No fatalities and decreasing number of pipeline injuries No pipeline failures	0 fatalities and disabling injuries 0 pipeline failures	Performance Status: Somewhat Met Assessed via reported incidents and cumulative frequency trends 2008 Fatalities: 2. Above the 5-year average 2008 Disabling injuries: 2. Frequency of disabling injuries was 1.0 per million hours worked in 2008, up from 0.65 per million hours worked in 2007. 2008 Hydrocarbon pipeline ruptures: 0. Decrease from 2 in 2007. 2008 Incidents: 71. Increase from 2007 (56) and above 5 year average (52).
Environmental impacts of regulated companies are minimized Decreasing number of major releases into the environment (Major release = greater than 100 m3 of liquid hydrocarbon)	0 releases	Performance Status: Met All Assessed via reported incidents and cumulative frequency trends Major Releases > 100 m3 = 0 Downward trend of major oil releases over the past four years.
Canadian energy and transportation markets are working well Oil and natural gas pipeline capacity in place based on pipeline utilization and price differentials	Pipeline sector has adequate access to capital markets Adequate oil and natural gas pipeline capacity in place Similar Canadian and US energy markets have equivalent pricing	Performance Status: Mostly Met Adequate capacity on gas pipelines. Oil pipelines had minimal apportionment during the year. Energy prices in Canada remain linked with North American prices indicating adequate transportation and trade between the two markets.
Level of shipper satisfaction with the quality/price of services provided by pipeline companies	Meet or exceed previous 2- year average of shipper satisfaction	Performance Status: Met All Average 3.67 out of 5 on a scale of 1 to 5 (where 1 = very dissatisfied and 5 = very satisfied). Exceeds previous 2-year average of 3.50.

Contribution of Priorities to Strategic Outcome

Operational

Priorities	Type	Link to Strategic Outcome	Performance Status Summary of Achievements Against Priority
Partnerships for regulatory efficiency and effectiveness	Previously committed to	SO-1	Performance Status: Met All Building partnerships with other organizations and stakeholders is a key factor in achieving improved regulatory efficiency and effectiveness. Results achieved in 2008-2009 include: Progress on streamlining federal processes by working with the Major Projects Management Office. Progress on strengthening relationships with Environmental Non-Governmental Organizations and partnering with the Canadian Environmental Assessment Agency will help achieve improved environmental outcomes. Partnerships and information sharing with northern regulators improved regulatory efficiencies in the North and will help achieve government priorities such as the Northern Regulatory Improvement Initiative. Partnerships to improve energy information offered to Canadians.
Effective engagement for stakeholders affected by projects	Previously committed to	SO-1	Performance Status: Met All Effective engagement identifies opportunities that will improve outcomes for all involved. Results achieved in 2008-2009 include: Enhanced Aboriginal engagement model. Comprehensive consultation with stakeholders through the Land Matters Consultation Initiative. Continued community engagement.
Continuous improvement of regulatory processes	Previously committed to	SO-1	Performance Status: Met All Continuous improvement reflects the NEB’s strategy to create and adopt best practices and its commitment to providing transparent, accountable and responsive regulatory processes. Results achieved in 2008-2009 include: Enhancements to risk-based lifecycle allowed the NEB to focus compliance resources on companies that will benefit the most from regulatory oversight. Clarification of the NEB’s expectations to industry regarding safety and environmental protection through proactive NEB communication strategies. New and more efficient tools, such as an online application system, to improve and simplify the regulatory process.

Management

Priorities	Type	Link to Strategic Outcome	Performance Status Summary of Achievements Against Priority
Leveraging our strengths to deliver on our mandate	Previously committed to	SO-1	Performance Status: Met All 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, and maintain knowledge within the organization. The focus on recruitment and retention strategies partly contributed to meeting recruitment numbers within the first six months of the year and a declining attrition rate. The NEB developed a comprehensive learning and development program to support employee career development, and maintain the knowledge and expertise needed to support the NEB’s mandate. Enhanced on-boarding processes for new employees helped develop the capacity to meet work demands more quickly.

Risk Analysis

Operating Context

The NEB operated in a changing economic landscape during 2008-2009. The onset of a global recession was accompanied by an international banking crisis and falling commodity prices. Energy price fluctuations and financial turmoil over the last year created considerable economic uncertainty in Canada and internationally. Energy infrastructure developments were not immune to this volatility and consequently, the pace of developing pipelines to connect those resources with markets has been uncertain.

Despite recent economic weakness, global energy demand will continue to grow in the long term, pushing development into more unconventional production and remote areas. A two-year pipeline construction boom 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.

The global boom in infrastructure development and changing demographics increased costs for equipment, materials and labour. The labour market was very competitive during much of the year, although these pressures have eased somewhat from the economic downturn. Both the NEB and the companies it regulates faced challenges in hiring and training qualified personnel.

Of considerable impact to the NEB was the application by TransCanada requesting that one of its pipeline systems, the TransCanada Alberta System, which is owned by TransCanada’s subsidiary NOVA Gas Transmission Ltd, be declared under federal jurisdiction and that the Board issue a Certificate of Public Convenience and Necessity for these facilities. The Board conducted a public hearing process in November, 2008 and as a result, approved the application and issued a certificate that came into force on April 29, 2009. This added almost 25,000 km of pipeline and hundreds of above-ground facilities in Alberta to the roughly 45,000 km of pipeline currently under federal jurisdiction. This is a 50 per cent increase in the amount of pipeline the NEB regulates.

Environmental concerns and public involvement in energy infrastructure development, whether by landowners, Enviromental Non-Governmental Organizations, communities or Aboriginal groups, has been growing since the mid-1990s. There is a need for reliable, unbiased and timely information to inform the public debate on energy and environmental issues.

Risks, Implications and Strategies

Throughout much of 2008, the economic boom and very active energy sector placed intense pressure on industry and the NEB. The NEB held seventeen public hearings during 2008-2009, the highest number in its history. During the latter part of the year, the NEB also needed to prepare for the possibility of regulating the TransCanada Alberta System, and the additional resources this would require. The labour market was extremely challenging, with both the NEB and the companies it regulates requiring highly skilled and qualified employees. With the NEB competing against the industry for employees with the same technical skills, it was important to focus on both retention and attraction strategies. The NEB concentrated on enhancing the benefits of working at the NEB, including work-life balance strategies, a competitive compensation package and career development. It also invested in developing a comprehensive learning and development program to maintain expert knowledge within the NEB and support employee training and career progression. These strategies resulted in the NEB successfully hiring new employees and contributed in part to a lower attrition rate during 2008-2009 than in recent past years.

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, as infrastructure ages, maintaining the physical integrity and safety of pipelines are concerns, along with the challenge to attract and retain experienced employees. A rise in safety incidents led the NEB to take action in order to influence and reverse the trend over the long term. In addition to its compliance work, the NEB met with industry officials and emphasized the importance of safety and promoted the sharing of learnings to improve performance. As a longer-term strategy, the NEB is examining opportunities to develop more leading safety indicators for industry and continues to work towards transparent reporting within the industry as one method of promoting a safety culture.

The NEB’s processes should enhance trust and understanding among those who take part in these processes. Most importantly, the parties should feel 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. Regulatory complexity can cause delays in bringing on new energy supplies and lead to increased costs to Canadians. Those people who could be affected by projects also require fair and accessible processes in order to participate effectively. Both project proponents and affected stakeholders are looking for effective processes that will enable needed infrastructure to be developed on a timely basis.

During 2008-2009 the NEB successfully partnered with the Major Projects Management Office to streamline federal processes on applications, and enhance its Aboriginal engagement practices. The NEB also strengthened its relationships and partnerships with northern boards in order to contribute to government priorities such as the outcomes outlined in the Northern Regulatory Improvement Initiative. Engagement with Environmental Non-Governmental Organizations helped to clarify and communicate the NEB’s role in environmental processes, and the NEB intends to continue this strategy into 2009-10. It also produced valuable feedback on how the NEB can better communicate with this community.

In response to growing expectations for public involvement in energy infrastructure development, the Board concluded a major public engagement initiative in 2008-2009. As a result, the NEB has decided to improve its regulatory program for safety, security and protecting the environment by also focusing on the rights and interests of those affected by energy infrastructure. This will allow the NEB to set out expectations on public consultation with industry and monitor company performance to ensure that those affected by energy projects are consulted and their interests are appropriately considered.

Expenditure Profile

Due to an increase in workload demands caused by industry activity and other emerging trends, an NEB submission for three years of additional funds was approved by Treasury Board in 2007. In 2008-2009, the NEB developed a Treasury Board submission for required resources for the addition the TransCanada Alberta System to the NEB’s jurisdiction, the implementation of a regulatory program for land matters and for enhanced Aboriginal engagement. The submission was approved in April 2009.

Based on industry trends and its ongoing environmental scan, the NEB anticipates a sustained and continued requirement for resource allocation levels to meet workload demands linked to industry activity, oil and gas development in the North, and other emerging trends beyond 2010. The NEB will conduct a review of its programs in order to develop a Treasury Board submission in 2009 regarding ongoing allocation levels.

As the chart on the next page illustrates, NEB planned and actual spending reflects the high level of industry activity in recent years and the NEB’s spending related to carrying out its regulatory responsibilities. Variances are due to a number of factors outside the NEB’s control including a delay to the MacKenzie Gas Project application, which resulted in a $1.4 million lapse. The NEB had assumed that the anticipated lapse could cover the eligible pay list (for recoverable salary expenses) which totaled just over $900,000. However, salary expenses were covered by the Treasury Board, and the anticipated lapse could not be applied. In addition, there was uncertainty regarding the amount of financial benefits payable to employees as the NEB’s new collective agreement was not signed until the end of the year. This made it difficult to determine the final salary allocation, contributing to an $804,000 variance. All of these factors resulted in a lapse of $2.3 million.

Some planned spending was also impacted by the year’s volatile financial markets. Anticipated staffing of some FTE positions did not occur due to challenges in hiring staff during an economic boom. Conversely, the economic downturn resulted in fewer hearing applications than was anticipated, and lower hearing costs. The NEB also took into account possible delays in Treasury Board approval of the 2008-2009 submission. These factors resulted in a lapse of an additional $1.4 million.

In considering factors impacting planned and actual spending that were within the NEB’s control, variance from the planned budget was less than 2 per cent.

Voted and Statutory Items
($ millions)

Vote # or Statutory Item	Truncated Vote or Statutory Wording	2006-07 Actual Spending	2007-08 Actual Spending	2008-09 Main Estimates	2008-09 Actual Spending
25	Program Expenditures	39.6	39.1	41.0	45.0
(S)	Contributions to Employee Benefit Plans	4.9	4.7	5.2	5.4
Total		44.5	43.8	46.2	50.4

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