Canada: Modern Convenience? Modernizing The National Energy Board

On May 15, 2017, the Expert Panel on the Modernization of the National Energy Board (NEB) released its report Forward, Together – Enabling Canada's Clean, Safe and Secure Energy Future (Report). The Report explores reform in several theme areas including the NEB's mandate, Indigenous engagement, decision-making and governance, lifecycle regulation, and public participation. The Panel recommendations relate not just to the modernization of the NEB, but to affecting Canada's overall approach to energy infrastructure and climate change, and propose significant changes to the structure and workings of the NEB as we know it today.

BACKGROUND

At present, the NEB oversees a portion of Canada's overall energy system: transboundary pipelines and electric transmission lines, and energy imports and exports. The NEB is also responsible for publishing data on energy transmission and infrastructure, which it uses as a basis for many of its regulatory decisions. The Panel was convened in late 2016 following a Prime Ministerial mandate issued to the Minister of Natural Resources. The Panel was given a broad mandate to "modernize the NEB" and "aim to position the NEB as a modern, efficient and effective energy regulator and regain public trust."

THE REPORT

Most significantly, the Report recommends separating and expanding the NEB's core functions by creating two new legislatively-empowered bodies: the Canadian Energy Transmission Commission (CETC), and the Canadian Energy Information Agency (CEIA).

1. Reforming the Legislative Mandate

Under the proposed scheme, the CETC would retain the NEB's current mandate and legislative authority to approve or deny transboundary pipelines and transmission line projects. However, the Report recommends significant changes to the project review process. At a preliminary stage, all major projects would be subject to a year-long deliberation by the Governor in Council (GIC), to determine whether a project aligns with the 'national interest.' On approval, the project would move to a detailed review and environmental assessment, followed by a licensing decision. The CETC would exercise that authority through a Joint Hearing Panel comprised of two CETC members, two Canadian Environmental Assessment Agency commissioners, and an additional, independent commissioner. The Joint Hearing Panel would include at least one Indigenous member, and be informed by substantive Indigenous consultation and stakeholder engagement.

Having the GIC make a preliminary determination on national interest means proposals such as Kinder Morgan's Trans Mountain expansion, or TransCanada's Energy East project would require the approval of Cabinet before entering any sort of detailed project review. While there are benefits to having the GIC decide the fate of a project early in the process, it is worth noting that the three-year review recommendation is a significant increase from the 15 months required under current NEB legislation.

To address concerns about the integrity of Canadian energy information and analysis, the Panel recommends establishing the CEIA. Presently, the NEB produces much of the data that underpins its own regulatory decisions. The Report suggests this has undermined public confidence in the NEB as an independent and impartial regulator. The CEIA, as an independent body reporting to the Minister of Natural Resources, would serve as a single clearinghouse for all energy data, sourced from both domestic and international agencies. The CEIA would collect and disseminate energy data, produce annual public reports, and measure quantitative analysis against the ambitioned goals of Canada's energy strategy.

2. Improving Relationships with Indigenous Peoples

The Report emphasizes the interests of Indigenous peoples and their involvement in high-level policy creation throughout. The Panel notes that current funding programs are often consumed by legal representation and third-party science, and do little to enhance the capacity of Indigenous communities at a systemic level. The Panel therefore recommends the creation of a new Indigenous Major Projects Office which would, under the governance of Indigenous peoples, formally define processes and accountabilities for consultation. The Office would also generate best practices for environmental assessments and regulatory reviews, with a view to improving Indigenous participation in the planning and licensing stages of major projects. The Report also urges that the role of the Crown in formal consultations should not be delegated to project proponents.

3. Reformed Governance and Decision-Making

Many of the Report's recommendations arise from public concern that the NEB is a biased overseer of major energy projects. Keen to dispel criticisms of a 'self-regulating' industry, the Panel recommends that the CETC be governed by an independent Board of Directors whose sole responsibly is the strategy and oversight of the Commission's activities. The Board would be entirely separate from the Joint Hearing Panel that renders regulatory decisions on behalf of the Commission, based on information provided by the independent CEIA. The new design explicitly avoids the regulator being involved in decisions that the Panel believes should be publicly decided. The Panel also envisions a larger, more diverse pool of hearing commissioners.

Importantly, the Report suggests that the CETC legislation be amended to provide authority and specific criteria for three separate classes of review:

  1. Project of national consequence would be subject to the three-year review process described above, and require approval and licensing permission from the GIC and Joint Hearing Panel, respectively.
  2. Projects of significance would require only a licensing review process, and not be subject to a 'national interest' determination by the GIC.
  3. Small-scale activities would require review and approval by the CETC, though not through a Joint Panel review.

It is unclear what practical distinctions the Panel conceives for each of the three categories, but ultimately, this tiered system would see projects reviewed and approved in a manner commensurate with their scale and risk. Also of note is the recommendation that Section 58(1) of the current National Energy Board Act be repealed. That Section grants the NEB broad powers to waive regulatory requirements for certain projects. The Panel states that, regardless of a project's size, regulatory review and environmental impact assessments should always be undertaken, but in a way that tracks the scale of the activity in question.

4. Improving Public Participation

The Panel heard repeated concerns on how the current NEB, as a quasi-judicial body and master of its own procedure, can appear to favour those stakeholders with the resources to hire experts and lawyers to argue their case. To effect public participation in the hearing process, the Panel recommends funding a Public Intervener Office which would, among other things, provide interested parties with information regarding the hearing process, coordinate studies on relevant public interests, and even represent those interests before Joint Panel Hearings.

The Panel also recommends increasing the scope of potential hearing participants. At present, the NEB may consider only the petitions of those 'directly affected' by a proposed project. The new CETC hearing process would allow claims from any interested party with a 'reasonable opportunity to participate,' and abolish tests of standing. This may drastically increase the number of parties the Joint Panel would be required to hear from and consider. The Report dismisses, however, any concerns that such an increase would impede or overwhelm the proceedings.

5. Modernizing Lifecycle Regulation

The Panel envisions the CETC setting standards in regulations and license conditions, but also identifying and promulgating best practices that increase overall system performance beyond the regulatory floor. For transmission line lifecycles in particular, the monitoring network is proposed to have four primary components: CETC inspectors, industry monitoring and reporting, formal programs for involvement of Indigenous communities, and reporting mechanisms for members of the public who observe risks and incidents. This network is to leverage the monitoring infrastructure already in place, but also expand to formally involve communities surrounding energy transmission lines. To this end, the Panel further recommends that the CETC be responsible for publishing plain-language rules for liability and spill-response obligations that are more accessible to the general population. The monitoring network would also involve, through the enabling legislation, the creation of Regional Multi-Stakeholder Committees to provide input at every operational stage of a project.

6. Respecting Landowners

The Panel also emphasizes the need for coordination between provincial and federal governments in harmonizing relationships with landowners whose property might be impacted by energy infrastructure. In this respect, the CETC would enact rigorous standards for first contact with landowners, and would require that they be provided with comprehensive explanations of expected disturbances to their land. The legislation would also prescribe a cooling-off period between first contact and signing, to ensure that landowners fully consider the impact of their agreements. In pursuit of this objective, the Panel recommends establishing a Landowners Ombudsman to review and make recommendations on improving landowner relationships, provide procedural information, enable better mediation, and even provide funding for access to legal advice.

IMPLICATIONS

It may be too early to say what practical effect the Panel's recommendations will have on the current state of energy transmission regulation in Canada. The federal Government is accepting comments on the Report until June 14, 2017, and several of the Panel's endorsements – such as having both the CETC and the CEIA situated in Ottawa instead of Calgary – have already received strong opposition. In any event, the Government will be reviewing the Panel's recommendations, along with several other environmental and regulatory reports, over the coming months. That review will ultimately determine the trajectory of legislative reform for Canada's energy regulator.

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