Implementing Smart Regulation: How are we doing?

1. Implementing Smart Regulation:How are we doing? CAMPUT Conference May 2, 2005 Quebec City Ken Vollman Chairman National Energy Board

2. Presentation outline • The Regulator’s Role: Recap of last year’s “protect and enable” message, and how we’ve been walking the talk • Current market context • Current challenges and how well we’re doing in addressing them • A report card • Summary comments

3. I. The regulator’s role To protect To enable + Outcomes in the public interest = Protect and enable: means to regulate in a way that seeks to protect against the negative impacts of energy development while enabling desirable outcomes determined to be in the interest of Canadians

4. What does enabling entail? • Process sense • focus on results and cost effectiveness • establish common information and regulatory requirements • coordinate among/between agencies and departments • publish service standards and agreements • eliminate duplicative functions • Regulatory policies • facilitate the long-term efficiency of markets • provide information and choice to all market participants • Allowing construction in the public interest • facilitate construction and development that is within approved terms and conditions

5. The Board’s vision is to be a respected leader in energy regulation that protects and enables in the Canadian public interest.

6. Plan Improve Do Measure Quality Management System(and business process mapping) • Consistently achieve results aligned with public interest objectives • Establishes clear accountabilities and service standards • Enhances process clarity for all participants • Measure achievements • Expectation of continuous improvement

7. Cooperation and partnerships • Northern Cooperation Plan for Mackenzie Gas Project • MOU between NEB and FERC • Atlantic offshore agreement • Canada- Quebec Agreement on Environmental Assessment which may lead to a joint review of the Rabaska project

8. Enabling through regulatory policies • Continue the development of goal-oriented regulation • Shipper surveys (first ever) • Promote understanding of energy markets (EMAs) • Encouraged and provided resources to CCU • Making sure the rules of the game are clear for new activities such as LNG imports and marine seismic work

9. Enabling through regulatory policies (continued) • Evaluating COGOA regime for frontier E&P • Applying risk management principles to our compliance work • Stakeholder engagement • Revised code of conduct • Actively supporting CAMPUT

10. Facilitate construction of approved projects • SMART conditions • specific, goal-oriented (Desired End Result) • measurable • achievable • Coordinate condition compliance and inspection with other regulators • Streamlined s.58 and clarified O&M

11. II. Current market context • Not much different from last year: • high, and volatile, prices • supply lagging growing demand • end of incremental solutions; need to make choices about new major projects • A long list of oil, gas and electricity projects are on our radar screen • tracking 10 oil pipeline projects and alternatives • tracking 6 gas pipeline projects • tracking 8 LNG projects • tracking 4 international power lines

12. 16 15 14 13 11 12 11 10 17 17 21 18 23 19 22 24 20 28 25 25 26 27 1 4 2 1 6 8 3 9 7 5 Location of major projects with NEB involvement Oil P/L Gas P/L Power line LNG

13. Introducing the players, & drivers Desired end result Industry Public Regulators Clarity Mandate driven Energy needs met Involvement Timeliness Legacy Fairness Safety Efficiency Funding Differing processes Environmental integrity Long term stability Consultation Parochial Rights respected Enjoyment of property Risk averse Market choices

14. III. Current challenges • Fragmented responsibilities of approval agencies • erosion of integrated decision making • coordination challenges • “Enabling” processes and policies • Alignment of regulatory policy with energy policy • Matters beyond our control • Regulatory capacity • Maintaining respect for regulatory process and decisions

15. Rating Fragmented responsibilities of approval agencies • Regulatory complexity and fragmentation continues to grow • Regulators are addressing the issues through coordination, e.g., • Atlantic offshore EA cooperation MOU • Northern Cooperation Plan (14 agencies) • This solution has limited potential because regulators cannot concede their mandates

16. Rating “Enabling” processes and policies • Processes • Implement QMS and business process mapping • improve communication of regulatory requirements (e.g., Filing Manual) • publish performance standards for application processing • reduce up-front burden for small projects • pursue cooperation and partnerships • Policies • continue goal-oriented regulation • provide choice to all market participants • enhance stakeholder engagement • Facilitating construction • use results oriented conditions • Coordinate compliance

17. Rating Alignment of regulatory policy and energy policy • In recent times, regulatory policy has often been developed in advance of energy policy • In my view, regulators are well placed to bring policy gaps to the attention of government • expert knowledge of the issues; • mandate to consider the broad public interest; • requirement to take a long-term view; and • inherent neutrality and objectivity. • Is there a role for CAMPUT?

18. Rating Matters beyond our control • Hearings can become a forum for airing concerns which could be better dealt with by other means • e.g., land use planning, revenue sharing, land claims • Hearing time is used inefficiently to debate matters which should be dealt with by standards or regulations • e.g., air quality standards, CO2 emissions

19. Rating Regulatory capacity • Attracting and retaining Board Members • Competing for specialized staff expertise • Government controls

20. Rating Maintaining respect for regulatory process and decisions • Regulators must maintain their independence, impartiality and fairness • Stakeholders must feel they are engaged, their interests understood, and that they influence outcomes. Initiatives in this respect include: • incorporating consultation into all regulatory improvement projects • encouraging staff to maintain and build networks • updated our code of conduct • creating a new business unit to coordinate all strategic initiatives

21. IV. Summary Comments • Large infrastructure projects are needed to ensure our energy needs are met • Investors require clear and efficient regulatory processes • The public expects regulators to protect the environment and other public interests • The challenge to regulators is to effectively balance their protect and enabling roles

22. Summary Comments • The NEB is committed to partnering with other agencies and regulators to rationalize regulatory processes • The Board is actively pursuing Smart Regulation strategies • I would give us about a B- so far • We’re doing a lot of things right but there is still a lot of work ahead • Challenge for this Conference is to identify specific actions we can take in the next year