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Message from the Chair and CEO

I am pleased to present this Departmental Performance Report to the people of Canada. The National Energy Board’s (NEB or the Board) purpose is to regulate pipelines, energy development and trade in the Canadian public interest. In doing so, the Board examines carefully relevant safety, security, environmental, economic and social issues.

Pipeline safety and integrity and environmental protection are of paramount importance to the Board. In 2009-10, the NEB promoted pipeline safety by clarifying its expectations to industry and conducting audits and inspections across Canada. The NEB audit process was expanded to enable us to assess the adequacy of damage prevention programs developed by companies to facilitate their compliance with the Pipeline Crossing Regulations. During the year, there was an increase in some types of safety incidents; the NEB is working to understand the causes of these incidents and which requirements may be needed for pipeline companies to improve their safety and environmental performance.

The NEB continued its practice of thoroughly assessing applications and delivering its decisions in a timely manner. Some of the significant decisions released during 2009-10 pertained to the Alberta Clipper Expansion Project Detailed Route, Enbridge Pipelines Inc. Line 9 Tolls, the Keystone XL Pipeline Project and the Groundbirch Pipeline Project. The NEB also assumed jurisdiction for TransCanada’s Alberta System, adding nearly 24,500 km to the amount of NEB-regulated pipeline, an increase of approximately 50 per cent.

As part of its Energy Information Program, the NEB released a number of publications to keep Canadians informed on energy matters. Of note were the 2009 Reference Case Scenario: Canadian Energy Demand and Supply to 2020, the 2009 Canadian Pipeline Transportation System – Transportation Assessment and the Canadian Energy Overview 2008.

To ensure we have a thorough understanding of the environment in which we act, the NEB seeks opportunities to understand the views and interests of its many and diverse stakeholders. Through such opportunities, the NEB also promotes understanding and awareness among stakeholders of the NEB’s role. For example, during the past year, the NEB met with several environmental organizations to gain their perspective on environmental issues. We also met with northern organizations to exchange ideas and to identify ways to ensure approved energy projects in the North are developed in a sustainable and timely way.

During our Land Matters Consultation Initiative we heard from landowners and Aboriginal groups about the need for a participant funding program. The Government of Canada responded by announcing it would provide the NEB with the legislative authority to establish a Participant Funding Program to improve engagement of the public, stakeholders and Aboriginal peoples in the review of major energy projects. In 2009-10, the NEB also introduced an Enhanced Aboriginal Engagement program to engage Aboriginal communities earlier in our processes and facilitate their participation during NEB proceedings.

Looking to the future, I am confident we will continue to successfully pursue our mandate on behalf of Canadians, thanks to the knowledge, commitment and experience of our Board members and staff.


Gaétan Caron
Chair and CEO

Section 1

Agency Overview

1.1 Summary Information

Raison d’être

The National Energy Board's 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 to be active, effective and knowledgeable 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, established in 1959, 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 that cross international or provincial borders, pipeline tolls and tariffs, international power lines and designated interprovincial power lines. The NEB also regulates natural gas imports and exports, oil and natural gas liquids exports, electricity exports and some oil and gas exploration on frontier lands 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 Board’s responsibilities include evaluating the potential effects of proposed projects; monitoring and enforcing terms and conditions during and after construction; and monitoring and regulating ongoing operations, including deactivation and abandonment. The functions of the NEB with respect to pipelines, international power lines and energy trade are set out in the National Energy Board Act (NEB Act). The Board also has 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 compliance personnel 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 is also required to meet the requirements of the Canadian Environmental Assessment Act (CEA Act) and the Mackenzie Valley Resource Management Act.

The NEB, as an independent regulatory tribunal, is 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 are, except in rare circumstances, issued as public documents.

Strategic Outcome

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.

Strategic Outcome

Text description of this graph

Program Activity Architecture Crosswalk

  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
($ millions)

Revised Title(s)

Redistribution of Financial Resources ($ millions)
Program Activity Energy Regulation and Advice

44.4

Energy Regulation Program

20.7

Energy Information Program 7.3
Internal Services 16.4

1.2 Summary of Performance

The financial and human resources table below provides a summary of total planned and actual spending and human resources for 2009-10.

2009-10 Financial Resources
($ millions)
Planned
Spending
Total
Authorities
Actual
Spending2
44.4 63.8 56.2

 

2009–10 Human Resources (FTEs)
Planned
Actual Difference3
347.6 377.4 +30.2

 

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

2009–10 Performance

Frequency of disabling injuries and pipeline failures4

Zero disabling injuries and zero pipeline failures

Assessed via reported incidents and year by year improvement

Performance Status: Somewhat Met

Disabling injuries: 3. Decrease from ten disabling injuries in 2008-09.

Pipeline failures: 4. Increase from one pipeline failure in 2008-09.

Frequency of major releases into the environment (Major release = greater than 100 m of liquid hydrocarbon)

Zero releases

Assessed via reported incidents and year by year improvement

Performance Status: Mostly Met

Major Releases > 100 m: 2. Increase from zero major releases in 2008-09.

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

Performance Status: Mostly Met

More than adequate capacity on gas pipelines. Tight oil pipeline capacity in 2009-10 with some apportionment during the year. Considerable oil capacity under construction in 2009 and 2010.

Canadian energy market prices were well connected to North American prices indicating adequate transportation and trade between the two markets.

The Pipeline Services Survey was not conducted in 2009-10 to assess this performance indicator. This biennial survey is planned to occur again in 2010-11.

 

($ millions)
Program Activity 2008–09
Actual
Spending
2009–105 Alignment to Government of Canada Outcomes
Main
Estimates
Planned
Spending
Total
Authorities
Actual
Spending
Energy Regulation 26.0 20.7 20.7 33.1 29.1 Strong Economic Growth
Energy Information 6.1 7.3 7.3 7.5 6.8
Internal Services 18.3 16.4 16.4 23.2 20.3
Total 50.4 44.4 44.4 63.8 56.2  

 

Contribution of Priorities to Strategic Outcome

Operational
Priorities Type Status Linkages to Strategic Outcome
Demand for new and enhanced regulatory programs New

Performance Status: Mostly Met

  • Feasibility of extending the NEB’s management systems to encompass the rights and interests of those affected by NEB-regulated facilities and activities was examined in 2009-10. The extension was found to be feasible and the NEB is now developing its regulatory program in this area. Draft regulatory principles have been established and the Board is assessing the readiness of regulated pipeline companies to comply with these regulatory principles.
  • Enhanced Aboriginal Engagement program implemented for Keystone XL, NOVA Gas Transmission Ltd. (NOVA or NGTL) Groundbirch, NGTL Horn River and Enbridge Northern Gateway projects.
  • Work to improve the legislative framework in the North was deferred in light of other initiatives.

SO-1
PA: Energy Regulation

The development of new and enhanced regulatory programs is critical to ensuring that the NEB continues to meet its purpose in the evolving Canadian energy landscape.
Improve regulatory processes Previously committed to

Performance Status: Mostly Met

  • Promoted safety and pipeline integrity through information sharing at an NEB safety workshop held in May 2009. The NEB also provided presentations at the International Pipeline Conference and the Banff 2009 Pipeline Workshop on safety and integrity-related topics.
  • Clarified expectations of safety and pipeline integrity programs through a proactive audit and inspection program. The NEB continues to meet with regulated pipeline companies to review their incidents and discuss ways to improve industry performance.
  • Continued to update and modernize regulations and streamline regulatory processes. Amendments to the Cost Recovery Regulations affecting the electricity industry came into force in 2010 to improve the clarity and effectiveness of the cost recovery system. Internet-based applications were introduced for import and export authorizations.
  • Developed Damage Prevention Regulations to address the issue of protecting buried oil and gas pipelines from third-party damage. The regulations are in the regulatory process.
  • Incorporated risk-based lifecycle management into the planning process for compliance verification activities.
  • Worked in partnership with other regulators and governments to enact the new Canada Oil and Gas Drilling and Production Regulations.

SO-1
PA: Energy Regulation

Improving regulatory processes reflects the NEB’s strategy to create and adopt best practices and its commitment to provide transparent, accountable and responsive regulatory processes.
Build partnerships for regulatory efficiency and effectiveness Previously committed to

Performance Status: Met All

  • Streamlined regulatory processes by signing four project agreements coordinated by the Major Projects Management Office (MPMO).
  • Signed Joint Review Panel agreement with the Canadian Environmental Assessment Agency (CEA Agency) to partner on the environmental assessment of the Enbridge Northern Gateway application. Progress on streamlining regulatory processes in partnership with the CEA Agency.
  • Strengthened partnerships with agencies in the North to share knowledge and to prepare for future northern development.

SO-1
PA: Energy Regulation

Building partnerships is key to achieving enhanced regulatory efficiency and effectiveness. Through strong partnerships with other departments and agencies, the NEB can share information and best practices and reduce regulatory duplication, resulting in improved safety, security and environmental outcomes.
Effective engagement in NEB processes Previously committed to

Performance Status: Mostly Met

  • In partnership with the MPMO, the CEA Agency and the Canadian Nuclear Safety Commission, participant funding provisions were added to the Budget Implementation Act and the NEB is now planning program implementation.

SO-1
PA: Energy Regulation

Implementing a participant funding program will support eligible stakeholders in effectively engaging in NEB regulatory processes.
Management
Priorities Type Status Linkages to Strategic Outcome
Employee planning and development Previously committed to

Performance Status: Met All

  • Completed implementation of a learning and development framework to facilitate employee orientation, skill development and retention.
  • Secured funding for 56 FTEs to ensure the NEB is able to meet an increased workload due to assumption of jurisdiction of TransCanada's Alberta System (Nova Gas Transmission Line or NGTL), the implementation of the actions stemming from the Board’s Land Matters Consultation Initiative (LMCI) in 2008, and the initiation of an Enhanced Aboriginal Engagement program.
  • Increased investment in teams and focus on leadership in the organization. Reorganized to align program focus and reduce number of direct reports. Implemented an emerging leaders program.

SO-1
PA: Internal Services

Considerable expertise is required throughout the organization to carry out the NEB’s mandate. The new learning and development framework will facilitate employee learning and retention, facilitating the NEB’s continued delivery of efficient and effective programs and services.
Improve corporate effectiveness Previously committed to

Performance Status: Met All

  • Completed first phase of improving financial management. Financial accounting and management processes were incorporated into the Quality Management System (QMS). Finally, financial processes were also more closely aligned to planning and reporting processes.
  • Developed and implemented Business Continuity Plan to enhance security and business continuity.
  • Continued progress on integrating QMS throughout the organization.
  • Progress on integrating planning processes across programs and systems.
  • Developed and implemented the Integrated Risk Management framework, policy and profile.

SO-1
PA: Internal Services

Improving corporate processes will help achieve organizational efficiencies to support the delivery of NEB programs and services.
Improved information management Previously committed to

Performance Status: Met All

  • Implemented Records, Document and Information Management System as a part of the Information Management Renewal Project.
  • Completed the initial feasibility assessment on the development of a company information system to manage data in support of the risk-based lifecycle approach to regulation. Project was placed on hold due to competing priorities.
  • Continued efforts to make the NEB's paper and microfiche Frontier Information Office records available in digital format, including pursuit of funding.
  • Converted approximately 400,000 essential record images to digital format. This project will continue in 2010-11.

SO-1
PA: Energy Regulation
Internal Services

Information systems improvements will improve regulatory effectiveness in line with the Board’s risk-based approach and will allow the NEB to better manage program records.

Risk Analysis

Operating Context

The NEB continued to operate in a changing economic landscape in 2009-10. The year 2009 was a recession year in Canada with the gross domestic product (GDP) declining 2.5 per cent. While the economy recently has seen some recovery from the volatility of the global recession, uncertainties remain. Crude oil prices, although down significantly from the highs of 2008, climbed from about US$40 per barrel in March 2009 to US$80 per barrel in March 2010. Despite the recession throughout North America, the demand for Canadian crude oil continued to grow. Two major oil pipeline projects, Alberta Clipper Expansion Project and Keystone XL, were approved under NEB jurisdiction. These projects are primarily designed to increase the amount of oil sands production exported to the United States.

Natural gas prices stayed relatively flat in the US$4-5 per MMBtu range throughout that period. This was in part due to the economic recession and its impact on energy demand as well as the continued development of unconventional gas resources, including shale gas, throughout North America. Unconventional gas resources, particularly in northeastern British Columbia, continued to be developed and additional pipelines were needed to connect these resources to the North American pipeline grid. Despite the economic recession, the energy sector, including pipelines, remained relatively robust and the demand for regulatory oversight continued to be strong throughout the year.

Compared with the global boom in infrastructure development and changing demographics that increased costs for equipment, materials and labour over the last couple of years, pressures in the labour market eased somewhat in 2009-10, but remained high from a historical perspective.

Environmental concerns and public interest in energy infrastructure development, particularly in the oil sands, are growing. Interest from landowners and landowner associations, Aboriginal groups, and Environmental Non-Governmental Organizations (ENGOs) has been increasing since the mid-1990s. There is a growing need for reliable, unbiased and timely information to inform the public debate on energy and environmental issues.

The NEB was considerably affected in 2009-10 by the Board’s decision in February 20096 to approve the transfer of jurisdiction of the NGTL system to the NEB. This added nearly 24,500 km of pipeline and hundreds of above-ground facilities in Alberta to the roughly 45,000 km of pipeline already under federal jurisdiction, a 50 per cent increase in the amount of pipeline the NEB regulates. This system contains a variety of facilities of different vintages and operating conditions and the NEB had to be very diligent to ensure proper regulatory oversight throughout the transition.

Risks, Implications and Strategies

The economic boom that put pressure on labour markets in 2008-09 began to ease in 2009-10. Because of this general change in the labour market, the NEB was able to stabilize its staff complement during the year. Taking regulatory responsibility of the NGTL system increased the NEB’s workload; however, the Board was able to secure additional funding to deal with it. This allowed the Board to shift its focus from recruitment of staff to strategies for retaining and growing its talent and developing leaders to meet future needs. The NEB continued to develop and implement its learning and development framework to maintain the expert knowledge within the NEB required to deal with the changing Canadian energy landscape. Over the past year, the Board has determined the core skills required for a number of its key regulatory programs and has developed in-house training and arranged external training to facilitate skill development for these core regulatory processes. Certain skill sets required by the Board continue to be highly sought after by industry and the Board is still challenged to offer an attractive workplace.

The Board remains current on aspects of energy exploration, production and transportation through active participation in organizing and attending forums such as the Canadian Society for Unconventional Gas and the International Pipeline Conference. In addition to attendance at external conferences and forums, the Board provides internal training through seminars and workshops on topics that ensure it has the expertise to regulate industry.

Canada’s federally-regulated pipeline and power line systems transported $75 billion of energy in 2009 in a safe, environmentally sound and economically efficient manner. However, safety and the maintenance of the physical integrity of pipelines must remain a continuing focus of the Board as the physical infrastructure for energy transportation ages. The NEB continued in 2009-10 to communicate its expectations on safety to industry and to develop leading safety indicators. An increase in pipeline ruptures and incidents has led the NEB to take increased action to influence the reversal of this trend. This spike is attributed in part to the significant increase in the amount of pipeline the NEB now regulates due to the transfer of jurisdiction of the NGTL system. In 2010-11, an analysis of root causes of incidents will be conducted and key learnings will be communicated to industry and incorporated into the NEB’s safety and integrity management programs.

The NEB made progress in 2009-10 in updating and modernizing the regulations under which it operates. Board staff chaired a committee that developed a new Canadian Standards Association standard on security management for the petroleum and natural gas industry. This standard was then incorporated into the Onshore Pipeline Regulations, 1999 and the Processing Plant Regulations through proposed amendments. Progress toward modernizing regulations was also made in 2009 with the introduction of the Canada Oil and Gas Drilling and Production Regulations, which are an amalgamation and modernization of the Canada Oil and Gas Drilling Regulations and the Canada Oil and Gas Production and Conservation Regulations. With these actions, the Board will continue to have the tools it needs to effectively produce regulatory outcomes that are in the public interest.

In 2009-10, significantly higher expectations were placed on the NEB by landowners, landowner associations, Aboriginal groups and ENGOs. Many landowners have expressed concern regarding the impact of pipeline development near or on their land. To address landowner concerns, the NEB undertook the LMCI in 2008. The consultation was completed in 2009 and recommendations were then translated into work plans. As this work continues, regular updates are published on the NEB website (www.neb-one.gc.ca) to enable landowners to inform themselves on progress.

In line with the federal government’s MPMO initiative, the NEB implemented the Enhanced Aboriginal Engagement program, an extension to the work of the existing Aboriginal Engagement program. The Aboriginal Engagement program helps the Board keep up with the evolving participation and communication needs of Aboriginal groups by identifying and working to remove barriers to Aboriginal participation in NEB proceedings.

To maintain trust in its processes, it is critical that the NEB work to improve public understanding and awareness of the NEB’s role. This year, trips were made to Nunavut to engage with northern stakeholders and to improve their understanding of the NEB’s role and processes. As well, the NEB learned about northern organizations and their responsibilities. In 2009-10, the NEB also met with a number of ENGOs across Canada to develop an appreciation of their concerns and to share information on NEB regulatory processes.

Expenditure Profile

Total Authorities

During the 2009-10 fiscal year, NEB total authorities increased by $19.4 million due to the following main increases received throughout the year:

  • $9.6 million for the NGTL system, the LMCI and the Enhanced Aboriginal Engagement program;
  • $5.4 million for compensation adjustment for the impact of the Collective Agreement and other related adjustment signed as of 1 Nov 2008;
  • $1.1 million for Year–end adjustment to the Employee Benefit Plans;
  • $2.0 million for Operating Budget Carry Forward from FY 2008-09; and
  • $1.3 million for reimbursement of NEB Eligible Paylist expenditures for FY 2009-10.

Actual Spending

In 2009-10, NEB total expenditures were $56.2 million, which was $7.6 million less than total authorities. Due to a drop in the number of major applications in 2009-10, the NEB saw a decrease in hearings and under spent its hearing allocation by $1.5 million. The NEB lapsed almost $5.0 million in personnel expenditures due to the inability of the NEB to staff all of the 56 new FTEs it received in-year. This staffing will be completed in the 2010-11 fiscal year. Finally, Operating and Maintenance expenditures had a lapse of $0.9 million due to fewer than anticipated staff and to projects that were cancelled or moved to 2010-11.

NEB Spending Trends 2006/07 – 2009/10

Expenditure Trends 2006-2010

Text description of this graph
Voted and Statutory Items
($ millions)
Vote # or Statutory Item (S) Truncated Vote or Statutory Wording 2007–08
Actual
Spending
2008-09
Actual
Spending
2009-10
Main
Estimates
2009-10
Actual
Spending
25 Operating Expenditures 39.1 45.0 39.4 50.0
(S) Contributions to Employee Benefit Plans 4.7 5.4 5.0 6.2
Total 43.8 50.4 44.4 56.2