By Shahrzad Rahbar
The National Energy Board plays a very important role in regulating Canada’s energy system. It has a cadre of committed and expert staff who take pride in serving Canadians. However, it has come under some criticism lately. Below are my suggestions for restoring public confidence in the good work of the NEB.
Increasing Direct End-User Participation
As a federal institution tasked with protecting the public interest, the NEB would be better able to discharge its mandate with a more direct line of sight on end-users who ultimately bear the costs of infrastructure.
Local distribution companies are key stakeholders in the NEB process in their own right and bring a necessary perspective and vast knowledge of gas markets. However having gas distribution utilities be the main proxy representatives for consumers at the NEB is problematic. First, because the distributors do not bear the costs of the NEB’s decisions, which are passed through to customers who internalize the cost. Second, because the distributors may have direct or corporate interests in other related lines of business that may place them in conflicting positions vis-à-vis the interests of gas consumers to whom they provide distribution services. Third, the gas distributors’ management is legally obligated to act in the best interests of their shareholders, which interests may, but do not necessarily, coincide with those of their customers. The distinction between the interests of the shareholder and the customer is the reason for economic regulation in the first place.
There has been no direct participation from residential or commercial gas users at NEB proceedings of the past few years despite the huge impact of the outcome of those proceedings on the delivered cost of gas. IGUA, APPrO and the occasional large gas user have participated, though without the resources to match those of the pipeline companies, and at substantial cost.
The notable absence of the voices of end-users has eroded public confidence in the NEB process and has prompted concerns regarding the Board’s impartiality. Many end-user participants in the consultation meetings held by the OEB and the Régie on Energy East stated as much in their submissions and noted that the NEB process is outside of their reach.
Intervenor funding would enable end-users to participate and would restore confidence in the NEB and its processes.
More generally, expanded participant funding would provide customers with the opportunity to participate effectively at the NEB. The experience of the Régie and OEB has shown that with access to cost-recovery, end-users can develop the expertise and depth to make substantive and effective interventions that contribute to better decisions, in that they can more effectively reflect the public interest, and enhance public acceptability of those decisions. The NEB may have the legislative power to establish a participant funding program under articles 16.3 and section 24 of the current NEB Act. If deemed otherwise, it should seek the legislative mandate to do so, in order to ensure that it can effectively discharge its function of protecting the public interest.
Strengthening the NEB’s advisory function and facilitating dialogue
As President of IGUA I lived through the challenging process of adjusting the architecture of gas transmission and distribution pipelines supplying Quebec and Ontario to provide access to Appalachian shale gas. Reflecting on the process highlights two issues for me.
The main issue is that our regulatory apparatus is focused on response to particular infrastructure applications, and it proved lacking in considering, in full, major system-wide change.
The Tolls Task Force (TTF), a body that had served as an early warning mechanism for TransCanada and had been useful in resolving operational issues, proved ineffective in addressing the changing role of the Mainline. There was no single forum for a dialogue on the changing supply landscape and the need to remove bottlenecks in the Eastern Ontario Triangle (EOT) and manage underutilized Mainline assets. Litigation played itself out in multiple hearings in multiple jurisdictions with each hearing focused on a specific aspect of the infrastructure transition. There was no forum for a dialogue on the full scope of change, the end-state options or a co-ordinated transition process. The reactive nature of the regulatory process resulted in considerable instability, as fragments of the overall, cross-jurisdictional regulatory model were tested individually. This fractured and unstable situation prompted media campaigns and court proceedings, which all escalated to provincial government reaction, without any of this addressing, holistically, a resolution.
The local distribution companies (LDCs) and TransCanada did manage to hammer out a pragmatic settlement to remove the EOT bottlenecks, though these discussions occurred in the absence of the rest of the stakeholders, which heightened market angst and distrust. Sadly, the same process repeated itself in addressing the issue of underutilized Mainline assets. Again, the LDCs and TransCanada were left to hammer out a solution to conversion of the eastern portions of the Mainline. Again, other stakeholders were generally excluded and angst and mistrust resulted.
Even after this multi-year journey, important issues like the plight of the secondary market, or a more appropriate tolling structure for the Mainline as it transitions from providing base-load to meeting peak demand, have yet to be discussed or addressed effectively. The net result has been more uncertainty and fewer secondary market services that have led to large users accepting a higher landed cost of gas or having to live with increased risk to supply.
The other issue highlighted for me in observing the last few years of piecemeal regulatory activity is operational; the absence of any apparent scheduling coordination among the NEB and its provincial counterparts added unnecessary inefficiency given that the NEB determinations on the Mainline have significant impact on downstream infrastructure, and on further proceedings and determination by the regulators of that infrastructure.
While eastern gas system expansion and Mainline conversion proposals have been more or less resolved, Canada’s energy landscape remains in flux. Not only does our supply need to find new markets, but our demand patterns will change in response to climate change regulation. The impact on energy infrastructure will be significant and we need to have a constructive dialogue on a transition plan that optimises existing assets and investment.
The NEB needs to find a complimentary process to the hearing room for a constructive path forward. An NEB policy, or view, on expected changes/trends would provide some level of forward vision for the market and set the framework for individual project hearings. Combined with ongoing and more formalized staff level dialogues between the NEB and downstream regulators, such a forward vision could assist the downstream regulators in taking a more proactive and holistic view of the rapid market and infrastructure shifts falling under their own jurisdictions. The net result would be a more efficient and co-ordinated process that better serves the public interest.
The NEB should expand the process around its annual market reports to include work on an overall policy framework within which individual infrastructure and associated gas supply planning applications can be oriented and considered. Prior consultation and public meetings with stakeholders, including provincial regulators and end-users, could be used to facilitate an appropriate dialogue on the overall evolution of Canada’s natural gas infrastructure and component regional markets.
Both the FERC and the OEB have such processes, which have proven very beneficial to the regulated entities, their stakeholders, and the markets in which they operate. The OEB’s now annual Natural Gas Market Review process provides a good example of proactive dialogue instituted by the regulator to enhance collective understanding of macro-trends in the market, emerging market issues and appropriate regulatory policies and priorities. All stakeholders participate and gain a shared appreciation of ongoing changes and of the range of possible regulatory and market responses.
Market oversight powers as a means of reinforcing gas markets
Gas markets in Canada would benefit if the NEB exercised a market oversight role similar to the The U.S. Federal Energy Regulatory Commission (FERC). Over the last decade FERC’s enforcement branch has brought transparency to gas market transactions and has increased public trust in those markets. However, gas markets remain relatively opaque in Canada. IGUA members with operations in both Canada and the U.S. regularly comment on the difference.
The need was evident in the aftermath of the polar vortex winter. Consumers on both sides of the border faced supply curtailments and price spikes previously unheard of. The FERC was able to investigate and assuage concerns about abuse of market power and confirmed that markets had functioned effectively. However, in Canada no authoritative voice could offer the same assurance.
A legislative mandate for the NEB to increase the transparency of natural gas markets would enhance public and stakeholder confidence in the market.
Shahrzad Rahbar is the President of Industrial Gas Users Association (IGUA). She has served on the Executive Committee of the International Gas Union and as senior Vice- President at the Canadian Gas Association prior to joining IGUA