Proceedings of the Standing Senate Committee on
Energy, the
Environment and Natural Resources
Issue 17 - Evidence, March 23, 1999
OTTAWA, Tuesday, March 23, 1999
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:37 a.m. to examine such issues as may arise from time to time relating to energy, the environment and natural resources generally in Canada.
Senator Ron Ghitter (Chairman) in the Chair.
[English]
The Chairman: We have before us witnesses from AECB. Welcome, and please proceed.
Ms Agnes J. Bishop, President and Chief Executive Officer, Atomic Energy Control Board:Good morning, Mr. Chairman and honourable senators, thank you for the opportunity to participate in your hearings. As president of the AECB, I welcome the opportunity to speak to you about the regulation of the Canadian nuclear industry and to discuss AECB's plans and priorities for the coming months.
I intend this morning to give you a broad overview of our role as Canada's nuclear regulator. I will also speak briefly about AECB's transition to a new organizational structure and some of the key issues we deal with on a day-to-day basis such as the Y2K problem, deregulation of electricity markets, and waste disposal.
The AECB was established in 1946 under the authority of the Atomic Energy Control Act. We are an independent federal agency that reports to Parliament through the Minister of Natural Resources Canada. Our role is to regulate the nuclear industry in Canada in such a manner that the development and use of nuclear energy do not pose an unreasonable risk to health, safety, security, and the environment. We also have a mandate to control the import and export of prescribed nuclear substances, equipment, and technology, and to help fulfil Canada's domestic and international obligations under the treaty on non-proliferation of nuclear weapons.
The AECB contributes to the work of international agencies and organizations interested in improving the regulatory control of nuclear materials and facilities. In addition, we have cooperation agreements with several individual nations.
To achieve this broad mission, the AECB administers a comprehensive licensing system that covers all aspects of nuclear facilities, prescribed substances, and equipment. With few exceptions, if you want to acquire, use, or dispose of radioactive materials in Canada, you require a licence from the AECB, and your operations will be regulated and inspected.
Before a licence is issued, the applicant must meet criteria established by the board for the siting, design, construction, and operating and decommissioning stages of the project. In many areas, we have a joint regulatory process whereby licence submissions are reviewed with other regulatory bodies. In this way, the AECB is able to take into account the concerns and requirements of other federal and provincial regulatory agencies in areas such as health, the environment, transport, and labour before issuing a licence.
Once an operation has been licensed, the AECB undertakes a stringent monitoring and inspection regime to ensure compliance with the licence conditions and with the regulations in general. Failure to comply can result in a number of regulatory actions, up to and including shutdown of the facility.
For many Canadians, the CANDU power reactors operated by electrical utilities are the most obvious examples of nuclear facilities, with 20 reactors in Ontario and one each in Quebec and New Brunswick. Certainly these installations account for a large part of our work; however, nuclear technology has far more applications in modern society. In fact, at any one time, we administer 3,500 to 4,000 licences across Canada. The utilization of radioactive material such as radio isotopes is widespread. These materials are used in numerous industrial applications as well as in research facilities.
Almost every Canadian will, at one time or another, experience first-hand the utilization of nuclear technology in medical diagnostics or therapeutic procedures. The AECB also licences and regulates nuclear research reactors, particle accelerators, uranium mines, mills, and refineries, nuclear fuel fabrication plants, heavy water plants, and radioactive waste management facilities.
I want to make it clear to this committee that it is not the AECB's role to promote the nuclear industry. We are neither anti nor pro that industry and we do not build or sell reactors. That is the job of Atomic Energy of Canada Limited, a completely separate Crown corporation. We do not practice nuclear medicine, nor engage in any nuclear-related commercial activities.
In short, the AECB does not make decisions on whether to use nuclear power in Canada. However, our role begins once such a decision has been made, and it does not end until the facility has been successfully decommissioned according to the regulatory requirements.
That is a general overview of the AECB as it exists today. However, honourable senators are no doubt aware that we are an organization in transition, and that 1999 will be a year of significant challenge and change. When the AECB was created more than 50 years ago, the Canadian nuclear industry was in its infancy. At the time, the regulatory agency was concerned primarily with issues of national security. Since then, the focus has shifted to the health, safety, and environmental consequences of nuclear activities.
To reflect these modern circumstances, Parliament approved new legislation in March 1997 that will replace the Atomic Energy Control Act and will provide for more explicit regulation of nuclear energy in Canada. You are, of course, familiar with the Nuclear Safety and Control Act, Bill C-23, which was before the Senate two years ago. Since then, we have developed new regulations to support the act and have published them for public comment. We are now in the process of finalizing these, based on the comments we have received. Once the regulations are finalized and approved, which we expect to occur later this year, the new legislation will come into effect.
The Nuclear Safety and Control Act will have a significant impact on the AECB. It will provide the legislative foundation for effective regulation of nuclear facilities as we move to the new millennium. It has been eagerly welcomed by the AECB, precisely for the opportunity it gives us to reinforce the nuclear regulatory system and further protect the safety of Canadians.
First of all, it will give us a new name, the Canadian Nuclear Safety Commission. The new name will better reflect our modern role and mandate, as well as eliminate the present problem of AECB the regulator being confused with AECL the promoter, when the English acronyms are used.
Among other improvements, the Canadian Nuclear Safety Commission will have a clearer mandate to establish and enforce national standards in the areas of health, safety, and the environment. At the same time, the new act establishes a firm legislative basis for implementing Canadian policy with respect to security issues, particularly the non-proliferation of nuclear weapons. A number of important changes will also be made to the structure, powers, and authority of the regulatory agency.
For example, the new act increases the maximum number of commission members from 5 to 7, which will provide for a broader range of expertise in its decision making. There will also be a formal system for review and appeal of regulatory decisions. Compliance inspectors will be given greater powers and the penalties for infractions will be increased significantly from the current $10,000 to $1 million.
The commission will have the authority to require financial guarantees to cover the cost of decommissioning of facilities and management of radioactive waste, and to order remedial action in hazardous situations. The new act will also authorize the commission to enter into agreements with provinces, including the adoption of provincial laws, standards, and codes in commission regulations, if appropriate, or to avoid unnecessary regulatory overlap and duplication.
Ensuring the effective implementation of the new act and regulations is the most urgent challenge facing the AECB and is our top priority for the next year. Toward this end, as I mentioned earlier, we are finalizing the regulations needed to support the new act. Consultations with industry stakeholders, federal and provincial governments, and the public, are a key part of the process and essential to ensure a smooth transition to the new regulatory framework.
Also in support of the transition process, the AECB has implemented a comprehensive training program to ensure that our staff and board members are able to interpret and apply the new act consistently and effectively. We have expanded our efforts to develop new guidance documents to accompany the regulations. The guidance documents further define our expectations for specific aspects of nuclear operations and are being developed in consultation with licensees, the public, and other stakeholders.
All of this transition work is being done while we continue to carry out our licensing and compliance activities under the existing act. As you can appreciate, this is a very busy time for the board and staff.
While I am on the subject of new regulations, I would like to advise the committee that the AECB is making every effort to harmonize its regulatory requirements with those of other federal and provincial bodies that have responsibilities related to the nuclear industry.
Regulatory overlap and duplication is a sensitive issue that will continue to require our attention. The AECB is committed to streamlining the regulatory regime, minimizing the regulatory burden, and reducing administrative costs to the degree possible while still ensuring an effective and efficient regime.
A moment ago, I indicated how the new act will allow us to develop better cooperation with the provincial regulators and reduce duplication and overlap. At the federal level, we are working with the Departments of Health, Natural Resources, Transport, Environment, Human Resources Development, and Fisheries and Oceans to increase cooperation on regulatory issues that impact on or originate from the nuclear industry. This will continue to be a strategic priority for the board and for the new commission.
While providing for a smooth transition to the new organization is the number one priority for the AECB as we approach the new millennium, another pressing issue requires our attention: The potential impact of the year-2000 problem on nuclear operations.
Y2K is a significant issue in the safe and reliable operation of nuclear power plants and other installations.
It is a challenging risk-management project for the industry and regulators alike. The potential for problems was recognized some time ago, and since then the AECB and our licensees have been dealing with the Y2K issue in a comprehensive and consistent fashion.
While the primary responsibility for addressing the Y2K problem rests with nuclear operators, as the regulator, we have an important role to play in respect of health, safety, and the environment.
We have an obligation to satisfy ourselves that the industry is demonstrating Y2K readiness and to act appropriately if this is not the case.
The AECB has developed a comprehensive strategy for dealing with the Y2K problem. We are taking appropriate steps to ensure that the health and safety of members of the public and workers, as well as the environment, are protected.
Licensees are required to demonstrate their state of Y2K readiness by June 30 of this year. For power reactors, for example, this involves assurances that safety systems will function to shut down the reactor, provide continued cooling and containment, and maintain safety control and monitoring functions.
The June 30 deadline is strategic for two reasons. It will leave the rest of 1999 for plant staff to become familiar with operational changes and new procedures and to prepare for a reliable transition to the new millennium. Equally important, it will give the AECB time to take action if we are not satisfied with a particular operator's Y2K readiness.
Another element of our strategy involves establishing a dialogue with organizations responsible for issues over which we have no control, but which can affect nuclear operations. I am referring, in particular, to the stability of the electricity grid and of telecommunications systems on January 1, 2000.
The potential impact of the millennium bug on these external systems must be factored into our plans.
Domestically, our implementation plans are proceeding well, but being ready is not enough. For the nuclear industry, there is no such thing as isolation. The consequences of serious nuclear accidents do not stop at national boundaries. That is why it is critical for regulators and operators around the world to share information with each other.
The AECB has been working on Y2K issues with our regulatory counterparts in other countries for some time now. Early in February, we broadened the dialogue and mutual support by hosting an international workshop on the impact of Y2K on the nuclear industry.
A total of 20 nations attended the three-day workshop, which was sponsored by the nuclear energy agency of the Organization for Economic Cooperation and Development. Regulators and operators from around the world explored how different countries are responding to the Y2K challenge and heard about lessons learned to date and plans for the future.
For the committee's information, the workshop was deemed to be very successful and helped to solidify Canada's reputation as a world leader in the area of computerized systems in nuclear reactors.
While we are confident there will be no safety problems resulting from Y2K, we are developing contingency plans, particularly in relation to loss of power and telecommunications, which could affect our response to any nuclear emergency.
On the subject of Y2K, we also need to ensure that our own house is in order. Like most organizations, the AECB depends on information technology to deliver its programs and that means we are exposed to Y2K risks in our internal systems.
I am pleased to report that most of our systems are now Y2K compliant and work is continuing on the remaining ones. We are absolutely confident that all systems for the AECB's internal operations will be Y2K compliant.
I would like to turn now to some other issues that are currently affecting the operating environment of the AECB. These include: deregulation of electricity markets, moves towards privatization, and management difficulties at certain electricity producers.
In Ontario, for example, the implementation of Ontario Hydro's nuclear recovery plan and the introduction of competition into electricity markets will require additional efforts by the AECB to verify that the safety of nuclear operations is not compromised. The committee is no doubt aware of the problems being experienced by Ontario Hydro at its nuclear operations.
I would like to take a few minutes to address this issue from the regulator's perspective. As far back as 1989, the AECB recognized that the operating and maintenance standards at Ontario Hydro's nuclear plants had declined to the point that major corrective actions were required. This was discussed at the public meetings of the board and recorded in various documents that were also publicly available.
At that time, Ontario Hydro agreed with our assessment and recognized that the problems were significant. The utility indicated that it would require three to five years to regain its status as an excellent nuclear operator, based on industry standards. It also indicated that it was committed to doing so.
In the following years, several plans were developed and implemented by Ontario Hydro to correct the situation. While improvements did occur, the utility failed to sustain them.
By 1996, operations at Ontario Hydro had deteriorated to the extent that the Pickering power plant was given only a six-month licence, that is, the step prior to closure, with a warning that their other nuclear power plants were heading in the same direction.
As a consequence of AECB's action and assessments, as well as industry peer reviews, in 1997 Ontario Hydro initiated a series of detailed reviews of its entire nuclear program to improve operational performance and safety.
As part of this process, the utility commissioned an independent integrated performance assessment, or IIPA, which turned out to be extremely critical of the operations at Ontario Hydro Nuclear. The conclusions were similar to those reached by the AECB.
To correct the situation, Ontario Hydro proposed a nuclear assessment optimization plan that involved the lay-up of 7 of its 19 operating reactors. This was an Ontario Hydro management decision based on resource requirements to both continue and sustain improvements in operations, and not for safety reasons.
There was, however, a widely held misconception that Ontario Hydro had shut down the reactors solely for safety reasons. The AECB therefore suffered some criticism for not having shut down the reactors ourselves. One source of this criticism was the Ontario legislature's Select Committee on Ontario Hydro Nuclear Affairs.
In our response to this committee's report, and in other public fora, the AECB has forcefully stated its position on the situation at Ontario Hydro Nuclear.
We have never tolerated safety infractions. When faced with serious safety issues, the AECB has, without fail, taken the needed regulatory action, such as preventing power operation, prosecuting the operator, delaying station start-up, or requiring modification of reactor shut-down conditions.
While there is no question that Ontario Hydro needed to make operational, maintenance, and management improvements if they were to continue to be licensed, the reactors were operating safely under the conditions of the licence and for the length of time for which the licences were issued.
It is not the job of the AECB to manage the business operations of a licensee. Although we do have a responsibility to point out management practices that may contribute to a decrease in safety standards, it would be inappropriate for the AECB to interfere with other managerial considerations.
It was precisely these types of considerations that led to the shut-down of the Ontario Hydro reactors. Having said that, we agreed with the committee that there was room for improvement in how we deal with ongoing chronic problems such as those noted at Ontario Hydro.
Toward this end, we have created a new power reactor evaluation division within the AECB that is responsible for ensuring a more systematic, integrated, and consistent evaluation of the performance of nuclear power plants.
Over the years, concerns have been expressed about the need to improve the openness and transparency of the nuclear regulatory process, as well as to strengthen the AECB's public communications efforts. In response to this, public information is identified as an important responsibility in the new act. This is an ongoing process as we work to do a better job of informing and consulting the public about our activities, particularly in this year of transition to the Canadian Nuclear Safety Commission.
We have launched several initiatives in this regard. For example, the AECB's public notification and consultation activities have been expanded. Proposed licensing actions are now routinely distributed to concerned local officials, interest groups, and individuals in the affected communities. Notices are published in local newspapers. We have also continued the practice of holding public meetings in the vicinity of major nuclear facilities to encourage citizen involvement.
Our board meetings continue to be open to the public and to the media. Members of the public continue to contribute to the decision-making process by making submissions or presentations to the board. In addition, members of the public have participated in the consultation process for the development of the new regulations and regulatory documents.
In recognition of the need for the AECB to enhance its public communications function, about a year ago, we expanded our public information and communications activities through our new communications division. The division will play a key role in achieving the board's long-term goal of broader information dissemination and heightened public awareness of our activities.
Ontario Hydro has also been in the news of late as a result of the provincial government's initiative to deregulate electricity markets. This is not a phenomenon restricted to Ontario. Deregulation of electricity markets is occurring throughout most of the western world. In Canada, however, Ontario was the first province to pass legislation, through the Energy Competition Act, 1998, that will restructure both the market and the electrical utility.
The province's plan will create two new commercial electricity companies, one responsible for generating electricity and the other for transmitting it to customers. An independent market operator will also be established to dispatch power based on least-cost bids and to arrange financial settlements between buyers and sellers.
Let me be very clear on one point. It is not the mandate of the AECB to dictate to a provincial government how it should organize its electric utility industry. It is our mandate, however, to ensure that structural changes in the electricity sector take into account the specific safety needs of nuclear power stations.
Regardless of what shape deregulation takes, the operators of nuclear power plants in Ontario will still be required to comply with the licensing conditions set out by the AECB and its successor, the Canadian Nuclear Safety Commission.
Before we permit the operation of nuclear power stations by any new, competitive electricity-generating companies, we must be satisfied that no undue hazard is posed by the rules for operation of the grid, or by the relationship between the owners and the operators of nuclear plants. We must also be assured that the new operator is competent and that appropriate financial guarantees are established.
Based on our ongoing discussions with provincial officials, we are confident these issues can be resolved to the satisfaction of all parties. Nuclear regulators, however, are concerned that the increased competition created by commercial deregulation may lead to decreased resources for safety issues in nuclear power plant operations, or that the need to meet power supply commitments could lead to less conservative safety decisions.
The final subject I wish to touch on briefly this morning is the issue of high-level radioactive waste management. The long-term management of used nuclear fuel is a particularly controversial issue in Canada, as it is in many other countries, and the controversy surrounding this issue will probably not be resolved quickly.
As noted by the recent federal environmental assessment panel that reviewed AECL's proposal for the deep geological disposal of nuclear fuel waste, the technical issues of the concept may have been adequately addressed, but the social or public acceptance of it is questionable.
Perhaps the only issue that is generally accepted by the public, the industry, and governments is that nuclear operators must ultimately bear the financial burden of long-term waste management.
Broad public acceptance of any specific, long-term, high-level waste management policy will not be easily achieved. Whatever the eventual national policy on this important issue is to be, it will be the responsibility of the Canadian Nuclear Safety Commission to regulate the facility or facilities in such a manner that there will be no undue risk to workers, members of the general public, national security, or the environment. I can assure the committee that we will fulfil this responsibility with due diligence.
As you can see, honourable senators, this is a unique and challenging period for Canada's nuclear regulatory agency. Nevertheless, I am confident of our ability to manage change while fulfilling our responsibilities to Canadians.
We will aggressively pursue implementation of the new act and regulations, which will strengthen our ability to protect Canadians from unreasonable risk associated with the use of nuclear energy.
We will continue to improve our communications efforts and make our information as accessible as possible.
We will further improve and streamline the regulatory process, and we will continue to support international efforts to maintain and strengthen the nuclear non-proliferation regime.
Senators, I will be pleased to answer any questions you may have.
Senator Kenny: I would like to begin by addressing some of your international activities as I am particularly interested in trans-frontier risks. Can you help the committee by giving us a short seminar on what the IAEA, the ICRP, UNSCEAR, and the NEA all do and how they overlap as international regulatory industries?
Ms Bishop: I do not believe any of the organizations you mentioned are regulatory organizations.
The IAEA is the United Nations agency involved with nuclear activities. It covers a very broad spectrum of nuclear activity, all the way from promotion to the development of safety-related documents.
They have recently attempted to separate the promotional aspects from those of regulatory and safety issues. The IAEA is one of the organizations that develops international standards, policies, and guides. We work extremely closely with them and several of our staff are always seconded to that organization for some of the regulatory activity. The IAEA is also, of course, involved in the NPP.
The ICRP is the International Commission on Radiation Protection. It proposes international standards for radiation protection in terms of public exposure. Again, the AECB has worked very closely with that organization, and I believe Mr. Duncan has been a member of it.
The AECB has been greatly involved in that organization.
The primary role of NEA has been to look at the technical aspects of the nuclear industry. Of late, it has also begun to examine issues of regulation and safety, and in the last week of June, it will hold a workshop where politicians, regulators, and members of the public from four countries will meet to discuss those issues. I will be at that meeting and AECB and Canada will be represented there.
The UNSCEAR is the United Nations organization interested in protection of public health as well as other areas.
In addition to those areas, AECB is a member of associations such as INRA, which is an organization of the G-7 countries, minus Italy and plus Spain, and where the senior regulators discuss very candidly the issues of dealing with nuclear regulation within their own countries.
We are also involved in other international activities.
Senator Kenny: Rather than getting an overview of all your international activities, I want to focus my line of questioning on trans-frontier risks. It seems to me that of the four agencies that you have described, the IAEA and the NEA seem to be primarily concerned with risk factors.
I will focus particularly on reactors around the world that do not appear to be operating as safely as they might, and on what are we doing about it. Am I correct that those are the two agencies to which you would look first in terms of ranking the safety of international reactors?
Ms Bishop: Both of those organizations are, of course, interested in the safe operation of some of the reactors to which you were referring, but they do not necessarily rank the safety issues.
There is a new organization in Western Europe called WENRA -- the Western European Nuclear Regulators Association -- that is working on regulatory and safety issues with Eastern Europe because they are neighbours.
The IAEA sends groups in to look at the safety issues related to some of those reactors, and both they and NEA make every effort to help those countries improve operational aspects. We also discuss, at senior regulators' meetings including those countries, some of the specific issues they are facing.
When asked by those countries, but only when asked, the AECB has participated in the training of their regulators. We would not move in uninvited.
Senator Taylor: You would only go in if asked. Is it possible that you might not be asked because you could be seen as a shill for selling CANDU reactors?
Ms Bishop: No. I can state absolutely that, in terms of being asked as regulators to look at issues of international safety, the AECB is quite clearly seen as completely independent of the promoter.
Senator Taylor: You are, but do they perceive that?
Ms Bishop: Yes. I believe that those countries are very well aware of the separation. I do not think that is a concern.
However, not all regulators around the world are separated as effectively as we are. The new Convention on Nuclear Safety is another very important tool in terms of countries being able to evaluate each other's programs.
Mr. Harvie, how many countries have signed on?
Mr. J.D. Harvie, Director General, Directorate of Reactor Regulation, Atomic Energy Control Board: In the order of 50 countries have ratified the convention. The first meeting of the contracting parties of the new nuclear safety convention will commence on April 11 and last for two weeks. Canada was the first country to sign the convention and we will be leaders at this meeting of the parties next month.
Ms Bishop: That is another very important, new international effort.
Senator Kenny: We hear reports that there are some reactors, particularly in Eastern Europe, that have serious design faults, operator training deficiencies, lax security, and staff that have not been paid for six months. Are any of these reports true?
Ms Bishop: There is no question that there are nuclear power plants around the world that have deficiencies in terms of operations, and that some of them are operating under conditions that we would not allow. It is also fair to say that the international community is concerned about some of those nuclear power plants, and that the IAEA and its member countries are interested in doing whatever they can to improve those deficiencies.
Senator Kenny: If there were a "nuclear emergency," to use your words, at one of these sites, what sort of scenario do you foresee? Could we conceivably have problems in Canada? Could our food be affected? How would problems with these reactors affect the way Canadians live?
Ms Bishop: I assume that you are talking about a nuclear emergency with release of radioactive material, because there are other emergencies that do not result in that.
The amount of radioactive material that would eventually reach Canada and involve our agriculture and our water would, of course, depend on the amount of material released. As you know, we had very little contamination occur from Chernobyl. One factor in that was prevailing winds. I can only say that it would depend on the amount of material released and where it was released.
Canada is not likely to be significantly affected by some of those reactors, but there is no doubt that a large part of Europe could be. However, there would always be some fallout here.
Senator Kenny: Can you give us some sense of the order of magnitude? After hearing your presentation, I have the impression that you are keeping a close watch on what is going on in Canada, especially if you are prepared to shut down Ontario Hydro, or one of its facilities, on short notice. Can you give us some idea of the order of magnitude as to the control or regulation that you see in other countries, particularly in Eastern Europe, where there are some problem reactors?
Where do we stand on the scale and is this something to worry about? Is this something we should care about, or are there people like you over there who have their eye on what is going on and everything is in good shape?
Ms Bishop: Every country has its regulatory regimes and every country is attempting to reach international standards. If the question is whether there are reactors operating that should not be, then the international community should be playing a role in doing everything possible to either have them shut down or upgraded. For example, that is occurring in Chernobyl.
In the last five years, there has been a much greater move toward regulators within those countries developing their own regulatory regime and legislation, so that they can become more effective and separate from the political arm, if you like. However, it must be recognized that that is difficult to achieve in some of those countries.
When power is absolutely needed, it is difficult to regulate in the same way we do, where we will not allow plants to get down to the finest margin of safety before we close them.
Mr. Harvie: Under the terms of the international nuclear safety convention, one of the important things that countries are required to report on to the convention is the degree of independence of the regulatory agencies. Countries such as Russia, Ukraine, and Lithuania, which are operating, in particular, the RBMK and the VVER reactors, all have regulatory agencies. They do not always have the same degree of independence from the promoters of the operating countries as we require in Canada.
Part of our objective is to try to help and to encourage these countries to set up stronger, more independent regulatory agencies. That takes time, but it is happening.
Senator Kenny: I am asking you to give Parliament some sense of whether we can be comfortable with what is going on in Eastern Europe or whether there is something we should be worried about. If we should be worried, what are the problems and which countries are involved? We have heard that the two types you mentioned are potentially problem reactors. Is there a problem over there that we are not addressing? Are there reasons for us to be concerned, or is everything just fine?
Ms Bishop: If we look at the total picture, I think we know everything is not just fine in some of the Eastern European countries. Should we be concerned or should we participate in helping to improve the standards of nuclear safety in those countries? The answer is yes. AECB is doing that through the various organizations in which we participate.
If you want me to get down to particular stations in particular countries, I am not inclined to do that. It is not helpful in the overall picture.
The Chairman: I am not sure we can have a lot of comfort in that regard. However, I appreciate the position you are in.
Senator Kenny: In fairness, Mr. Chairman, I do not want the witness to answer questions with which she is not comfortable. Certainly the IAEA is quite categorical about listing them and will give you a map showing the problematic reactors. The same is true of the OECD nuclear energy agency. They will talk about it. They have no problem showing on the maps where the problems exist. I am a little surprised that you would come before this committee and say, "I do not want to talk about that."
Ms Bishop: Let me try to explain that. I will not list them, nor do I know that IEA or any other organization lists them, from 1 to 10. There is a difference between that and looking at the countries that have well-known difficulties.
Mr. Harvie: We all know which countries are operating the older Russian-designed reactors, in particular, that would not meet the stringent safety requirements which we insist on for reactors operating in this country. There is no question about that.
On the other hand, progress has been made. There have been significant improvements to the safety of RBMK reactors since Chernobyl.
To answer your question, I will not list countries, although it is a matter of public record which countries have these reactors. However, the older Russian-designed reactors are not, in my view, unsafe; they just do not meet the stringent requirements that the AECB requires be satisfied in this country.
The Chairman: Is it fair to say that your responsibilities are really within the borders of Canada and that is your basic mandate under the legislation?
Ms Bishop: That is correct. Our major mandate is domestic, but we also have a mandate concerning certain international activities.
Senator Wilson: I think it is true to say that the public depends on the AECB to regulate safety in this rather important area. Thus, we would like to help you do your job, and it is in this spirit that I raise my question.
I was on the Seaborn Panel for eight years and I am surprised to hear you say the report stated that, technically, the disposal of nuclear waste is safe, but what we need is social acceptance. If one reads the report carefully, beyond the executive summary, one finds that the main consensus on the panel was that there was no consensus about safety. That is said about four times in the report.
If I had anticipated that the federal government would put that spin on it, I certainly would have issued a minority report, along with three other people.
The panel was divided, and so the wording that we used was very carefully considered. We said that technically, on balance, at the conceptual stage only -- so we included all sorts of caveats -- the concept is safe, but from a social point of view, it is not safe.
We are not talking about acceptability there; we are talking about safety. Social scientists judge safety quite differently from technical people. One has to look at historical experience, cultural background, social context, and so on. That particular point of view, which took us about three years to hammer out, was totally ignored in the spin that cabinet put on that document.
I am wondering whether AECB has read that report carefully or not and what that means for your work. Social acceptance is a huge issue, but it is different from the safety factor.
We are much disturbed by the repetition of this interpretation, which I think runs counter to the intent of the report.
There was a stalemate on the panel, and we recognized there is a stalemate in Canadian society as well on this important issue. We wanted to reflect that and to signal to the government that this is far from easy. That is why we recommended several things that needed to be done before we proceeded. That is why many are now opposed to the export of technology to Romania. It is not because the reactor may not be safe, but because there is no known safe disposal methodology.
Ms Bishop: I think the report was very careful to say that the technical concept was probably appropriate.
Senator Wilson: On balance, at this date.
Ms Bishop: On balance. That was also the view of AECB when it reviewed the technical aspect of the concept. We felt it was acceptable, but of course, you have to move from there to any site-specific issues. I am speaking only of the technical aspect now. Even if the concept is acceptable, more work would need to be done as you move to site-specific issues.
In terms of the social concerns, there is no question that the social aspects of safety, or the social concepts of safety, are very important in terms of making national policy.
Of course, we do not make national policy. Once policy is made, if a proponent came forward with, say, a deep disposal waste facility, that proponent would have to go through a very detailed and extensive licensing process, including public consultation on and public acceptability of that particular type of facility.
I appreciate what you are saying, Senator Wilson.
Senator Wilson: One reason I wanted to say it is to get it on the record, so that I would stop hearing everywhere I go that this is what the Seaborn report said, when it clearly did not. I would appreciate any support you can give there to clarify the situation.
I appreciate what you are saying in terms of technical expertise, because one of the things we said in the report is that the 95 deficiencies noted by all the interveners would have to be examined and corrected before anything proceeded. That is clear. We also know public consultation is necessary, and that leads me to my second point.
You talk about openness and transparency and public information and so on, but you also distinguish between stakeholders and the public. Which publics are you talking about and what are your methods for public consultation? In my view, this is such an important issue to Canadians that the public should not only be invited and encouraged, but it should be made easy for them to intervene. How many citizens' groups joined in formulating the new regulations for AECB? How successful were you in getting public consultation?
Ms Bishop: We had approximately 1,800 responses from approximately 68 different organizations, some of which represent hundreds or thousands of people. Some of those responses were from individuals.
We received a wide variety of comments. As you might expect, comments from certain public groups were at the opposite end of the spectrum from those of the industry, and wherever possible, we tried to incorporate comments into the final drafting of the regulations.
People who live near major nuclear facilities have a very significant interest in those facilities, and we attempt to make participation as easy as possible during the relicensing process. I should point out that relicensing and original licensing are two different levels of ensuring that we have done everything we can in terms of public consultation.
I can tell you about our attempts to make it easy for the public to be involved. We have a substantial list of organizations and individuals who are on our automatic mailing list for any type of activity relating to the specific facilities that they happen to be interested in.
We allow public participation at our board meetings, and whenever possible, we actually go out to the community to hold our meetings on licensing decisions for the facility in that area. We send out thousands of pages of material, without charge, over licensing issues. Throughout the year, we receive hundreds of letters requesting information, which we also provide to members of the public. We also attempt to work very closely with municipalities, local councils, et cetera, in terms of providing them with information.
We do not offer intervener funding but we certainly encourage public participation.
Senator Wilson: I have one more related question for today, although I have many other unrelated ones.
In terms of the pending transportation of plutonium into Canada, and in view of your commitment to openness and transparency in the interests of safety, will the transportation routes be made public? Will communities know beforehand that it is being transported by car or by ship? How will you accommodate the wishes of the communities involved? Unless this is done, I think you might be facing civil disobedience.
Ms Bishop: There are two issues here. One involves the extremely minute amount of plutonium for testing. The other issue would arise if we were to suddenly start burning plutonium in our CANDU reactors.
As to the first issue, the testing material, AECL is already licensed to handle that very small amount of radioactive material. The shipping of that very small amount, in terms of packaging and transportation, will be done in a way that meets all international standards.
There is some question, and I think a reasonable one, as to whether the actual route should be made public for security reasons.
Senator Wilson: For whose security?
Ms Bishop: The security of the actual material that is being shipped. That is open to question, and it is not AECB's decision to make.
When it comes to burning monoxide fuel in CANDU reactors, if that should occur, a whole new application would have to be made to AECB. That would open up a new licensing process, which would also include all of the transportation issues. As of this moment, we have not had any proponent come forward with a proposal for licensing purposes to burn monoxide fuel in their reactors.
Senator Spivak: It seems that there is some residual, lingering doubt about the independence of your institution in the public's mind.
This is not a partisan statement, but the Government of Canada's policy is to promote the sale of nuclear reactors. Also, the Prime Minister was recently actively promoting the idea that Russian nuclear spent fuel be sent here.
During the course of the passage of the Nuclear Safety and Control Act, I presented an amendment to have your agency report to Parliament, but it was not accepted. However, had that amendment gone through, there would have been more confidence in the independence. I am not imputing motives here; I am merely suggesting the scale of action.
In regard to that, I want to ask you about the role of the nuclear control agency. For example, in the sale of CANDU reactors to China -- and there is a court case involving this at the moment, with which I am sure you are familiar -- there is legislation in Canada which says that an environmental assessment must be done before the sale of nuclear reactors.
Leaving aside the court case and whether it should have been done, if that procedure had been carried through, what would your role have been with regard to ensuring the management of the CANDU reactors and the disposal of the radioactive waste material?
Ms Bishop: AECB has no role in the decision of whether or not CANDUs are sold to another country.
Our role in terms of the regulation of those CANDUs in those countries is also zero, from the point of view that those are sovereign nations with their own regulatory processes. However, the regulators of most countries who buy a CANDU will ask AECB to put their regulators through extensive training with regard to the regulatory aspects. In some cases, we second personnel to their regulatory organization.
AECB has absolutely no responsibility for the management of those stations.
Senator Spivak: Then who would be doing an environmental assessment here in Canada before the sale is completed?
Ms Bishop: It is difficult for Canada to do an appropriate environmental assessment in another sovereign state and at the specific site of that reactor. Sovereign states may not necessarily allow you to do so.
We would not be the principal agency responsible for that environmental assessment. Perhaps Mr. Duncan can expand on who would be responsible for the sale.
Mr. Murray Duncan, Director General, Directorate of Fuel Cycle and Materials Regulation, Atomic Energy Control Board: It would be up to the industry to decide on how they might be involved in the environmental assessment. We might be called in to assist from an expertise point of view, but certainly not as a regulatory agency.
The Chairman: To whom in the industry are you referring?
Mr. Duncan: The industry selling that particular reactor. In this case, we are talking about a Crown corporation or any of its components.
The Chairman: When we sell, do we sell with conditions attached, or do we just sell with hope?
Mr. Duncan: You would have to ask the industry. We are not involved in the sale.
Ms Bishop: You must remember that in selling reactors to other countries, there are conditions under the non-proliferation treaty in terms of safeguards in those particular countries. Canada does not sell CANDUs to those countries that have not become signatories to the NPT because the IAEA safeguards program must be in place. Those are some of the policies that we may look at.
You cannot expect us to be responsible for either the management or an in-depth, on-site environmental review in another sovereign state, but the industry certainly has to do that.
Senator Spivak: I am left with the impression that that part of the legislation is not being taken very seriously. If it were, we would have a clear picture of what needs to be done or if it can be done.
You may not want to answer this question in detail, but I would like to know your opinion of the alternative plans to deal with the Russian weapons-grade plutonium. Alternative plans were put forward that many feel are better than what is being done. There is also the whole question of nuclear waste, what the alternatives are, and your opinion on the alternatives to deep disposal.
There may not be time to answer those questions, so I would be happy to get a written response later.
Senator Forrestall: That is an important question.
Ms Bishop: When we look at the waste issue, we talk about management of waste versus disposal. "Management of waste" means that there is an ongoing requirement for monitoring and care, et cetera.
From the AECB's perspective, the above-ground waste management, that is, the silo, can be safely continued for several more decades. Eventually, however, we may need a policy for final disposal. There are arguments about that and about how many generations we could continue with a management versus disposal process.
While we are continuing with the management mode in this country, as regulators, we would not accept any management process where the material could not be retrieved for eventual disposal because we would never want to lose that option. From the board's point of view, we must look at the proposals strictly from a safety point of view.
We could accept disposal and above-ground management, as long as they were both done appropriately.
As long as we are producing material, and as long as we have the material that has already been produced, we will probably, eventually, be looking at a method of disposal. Then you can also look at disposal in terms of whether that material is retrievable or not.
Senator Cochrane: In relation to problems that we are having in our province, we have had American bases there, and when the Americans pulled out they left a large amount of waste. The waste has been disposed of through these deep burial sites. Currently, there are concerns among the local people because of cancer rates and a fear that that is where it is coming from.
Would you say there would possibly be more danger in transferring that waste to other sites than in leaving it where it is?
Ms Bishop: Is this nuclear or other forms of waste?
Senator Cochrane: Yes, PCBs and all kinds of other things.
Ms Bishop: I would not be able to answer those questions without knowing the types of containers the wastes are currently in and the local geography, et cetera. This is in Newfoundland?
Senator Cochrane: Yes.
Mr. Duncan: We are aware of the sites. As for any material that has caused concern from a health perspective, any radioactive waste, that can and will be moved to sites that are under control.
Much of that material was actually taken away by the Americans; that is my understanding of the situation. Anything residual will be cleaned up to a level that is normally set federally. We have a federal level for clean-up and this is quite often looked after by Natural Resources Canada. They are very much involved in the clean-up of sites like this.
Senator Taylor: One thing that bothers me a little, and has been touched on here, is inspection. I mentioned originally that we might be under suspicion and not asked to inspect foreign plants because we are in the business of selling plants. However, it appears from what you said that every sovereign nation is going ahead on their own hook.
Is there any move afoot in the United Nations to try to establish an international inspection service that all countries would be willing to accept, or is it so militarily sensitive that we will all keep going in different directions until we blow each other up?
Ms Bishop: In terms of safeguards, there are international inspection teams for the spent fuel. Those are already in place through IAEA.
Your second question is whether there are moves afoot to try to harmonize standards for nuclear regulatory and safety issues on an international basis.
I believe that what has already been mentioned, in terms of the safety convention on nuclear power plants, is an example of where we are attempting, as a world body, to bring nations to a minimally acceptable level of safety. Each of us also works with various countries in terms of looking at harmonization of issues.
Now that is not all in place yet; however, there is certainly a growing number of countries committed to meeting the IAEA's or other organizations' international standards. I have seen more movement on that in the last five years than ever before.
There are also other ways in which we are working together, depending on the types of reactors we are dealing with. For instance, the senior technical people of all countries who have CANDUs meet once a year for an entire week to discuss technical issues. Also, as countries begin to become more transparent, they want to know how to do this. It is not only technical issues that we are examining, but citizens of other countries are demanding public accessibility.
I believe there are a growing number of ways in which we are attempting to work with each other towards international harmonization. However, it takes time and it takes commitment on the part of nations. It also takes commitment on the part of nations who are already beyond those standards to put resources into this type of activity. The process is in place, but it still has a long way to go.
Senator Taylor: That leads to my next question. My limited knowledge of the subject indicates to me that the dangers may come in two ways. One is waste disposal, which is really not that dangerous, since you can put it in silos or underground and it will not spread beyond the neighbourhood. Although I believe one facility is on the coast of New Brunswick.
Ms Bishop: Yes, it is.
Senator Taylor: It seems to me that that is not a wise place to put the waste. It should be inland, so that you are only wrecking your own environment if something goes wrong. The real danger, looking at it as an engineer, is the operation of the plant when it takes off, such as at Chernobyl, and goes the other way. In reading your reports, it seems to me that you are concentrating very well on waste disposal and you have that under control. However, do your inspections take into consideration the operation of the plant to ensure that it will not go out of control? Do you have the technology to go into a plant and give advice on how to stay out of trouble?
Ms Bishop: Yes, very much so. We inspect both the managerial and the technical aspects of operating nuclear power plants on a regular basis. In each of our power plants in Canada, we have inspectors on site who actually work within those areas. In addition, there is a large group of special technical people here in Ottawa who also go out and do assessment and analysis at the nuclear power plants.
You may be interested to know that, from the AECB's perspective, many of the deficiencies at Ontario Hydro were the result of poor management systems, and this is not unique to Canada. The IAEA has also become interested in looking at the development of criteria for making judgments on managerial issues that could affect the safety of operations. There have been at least two meetings on that and there will be another one here in Canada in August. Regulators around the world are now beginning to look at these issues, and not just the technical ones.
Senator Taylor: When we sell a CANDU reactor, do we send out a technician who advises on its management?
Ms Bishop: Yes, in terms of the regulator, which is what the AECB is about.
As I said, we will provide training for regulators if requested to do so. We have seconded people to countries for a period of one to three years. For example, we had a staff person seconded to the Romanian regulators.
Senator Cochrane: Since you are answerable to Parliament for the control of waste facilities, what role has the AECB played regarding the plutonium that will be shipped from Russia and the U.S. this year?
Ms Bishop: With respect to the amount of plutonium being shipped for the test procedure, the AECB must do two things. First, the AECB has the responsibility to look at what the AECL plans to do with that material, and second, the AECB must ensure that transportation and packaging standards are met.
In fact, the present licences of AECL are perfectly in keeping with the small amount of material that is being brought into the country. The shipment absolutely must meet the packaging and transportation standards for that type of material.
Senator Cochrane: Certain ports are identified as being willing to bring in this plutonium. They include Montreal, Halifax, Quebec City, Sarnia, and Churchill, Manitoba. Last year, legislation was passed in Parliament to privatize these ports. They will not fall under federal jurisdiction; rather, they will be in the hands of private owners. What about the safety factor there?
Ms Bishop: It is important to make a distinction between the very small amount of material being brought into the country for testing, and shipments of large amounts of material, if the day ever comes where plutonium is burned in the CANDUs.
The shipping of test material is looked at from the point of view of the method of transportation. All methods must meet certain criteria for packaging and transportation, including fire, impact, et cetera.
With respect to test material, there is no reason for concern with safety issues at those present facilities.
When we look at the shipment of larger amounts of material, that is a whole new licensing process and we would be looking at the entire method of transportation at that time. However, there is a big step between testing and ever reaching the stage where plutonium may be burned in CANDU reactors.
The Chairman: Thank you very much for being with us this morning. We hope our level of communication continues.
We welcome the continuation of this yearly discussion.
Mr. Vollman, congratulations on your appointment as chairman. We are all aware that you have taken over the helm from Mr. Priddle, and we look forward to your comments. Please proceed.
Mr. Kenneth Vollman, Chairman and Chief Executive Officer, National Energy Board: Honourable senators, as you know, Mr. Priddle has retired. Although it is true he has retired from the National Energy Board, he is more busy than ever and has been consulting around the world. I have heard of his travels in Kazakhstan, Colombia, and other rare venues.
Mr. Chairman, it is an honour to be invited here this morning to talk with you about the work of the board. I would like to introduce the board officials who will be assisting me this morning. They are Judith Hanebury, the general counsel of the board, and Gaétan Caron, who is the board's executive director and chief operating officer.
Today's appearance marks the third occasion in recent times that we have appeared before this committee. The first was in June 1996 and occurred in Calgary. It was combined with a trip that the committee was taking through the West and we were pleased to host that visit in our own building.
The second appearance was in November 1997 here in Ottawa.
My personal experience with the committee goes back a couple of decades. At that time, the committee was known as the Standing Senate Committee on Energy and Natural Resources, chaired by Senator Hastings. I recall appearing as a witness on specialized supply matters and being very impressed with the committee's knowledge of such subjects as tertiary recovery from oil reservoirs.
Thus, after an absence of 20 years, I am back. I hope that I can be of assistance to the committee.
Our presentation today will be in four parts. First, I will provide some background on the board's mandate.
Second, I will talk about the issues being faced by the oil and gas industry because they have an impact on how the board conducts itself. To facilitate discussion of the current issues the board is facing, we have grouped them into two broad areas. They are, physical regulation and economic regulation.
During the past decade, the board has witnessed an increased emphasis on physical regulation as opposed to economic regulation. Economic regulation deals with all commercial matters, including approval of tolls and tariffs, access and competition issues, and the approval of energy exports.
Physical regulation encompasses safety and the environmental regulation of the pipelines and related facilities under our jurisdiction.
I will speak to the economic regulation and safety issues. Ms Hanebury, as she did during the last appearance, will address the environmental ones.
To round out the presentation, Mr. Caron will provide you with a brief overview of our major corporate activities.
In addition to myself, we have six board members. They are: John Bulger, Judith Snider, Anita Coté-Verhaaf, Jean-Paul Théoret, Diana Valiela, and Rowland Harrison.
The National Energy Board Act provides for up to nine permanent members and up to six temporary members. However, there is an understanding that something less than that is appropriate under current conditions. Currently, we have seven permanent and two temporary members. These numbers appear to be quite close to optimum under today's conditions.
The vice-chair position is currently vacant and we will have an additional vacancy next week, as Madame Côté-Verhaaf's term is expiring at the end of this month.
Our responsibilities are set out in several acts, the main one being the National Energy Board Act. Under that act, the board is responsible for granting authorizations for construction and operation of interprovincial and international oil, gas, and commodity pipelines; construction of international power lines; approval of tolls and tariffs on board-regulated pipelines; and approval of exports of natural gas, oil, and electricity, and import of natural gas.
Under the Canada Oil and Gas Operations Act, the board is responsible for approval of oil and gas drilling in frontier areas that are not subject to federal-provincial accords.
Finally, under the NEB Act, the board also provides advice to the Minister of Natural Resources Canada upon request.
It is common for people to assume that the National Energy Board is involved in energy matters beyond those I have just mentioned. Thus, I would like to take a moment to list a number of areas for which we do not have a mandate.
The board is not responsible for the regulation of oil and gas drilling and related matters in the provinces. Thus, all responsibility for environmental reviews of the effects of oil or gas exploration activity, for example, lie with provincial authorities. The board has no mandate to be involved in interprovincial electricity trade, including interprovincial transmission lines, unless a specific line is designated by Governor in Council as a line to be constructed and operated under National Energy Board jurisdiction.
Finally, the board's main environmental responsibilities arise out of its authority to approve the construction and operation of pipelines. The board must ensure that pipelines are constructed and operated in a manner that minimizes negative impacts on the environment, including fugitive emissions and combustion gases from those facilities.
I would like to move now to the second topic, which is an overview of the current regulatory environment. A major development in the past few years has been the emergence of a strong oil- and gas-producing industry in Atlantic Canada. The oil and gas richness of the East Coast basins has been known for decades, but until recently, the only site with favourable economics for large-scale development has been the Western Canada sedimentary basin.
Growth in the production from the WCSB, plus the arrival of Atlantic Canada as a producer, has made for a busy time for our board. As one indicator, I can advise you that during the past two years, we have held public hearings in eight out of the ten provinces. The two provinces in which we have not held hearings are Prince Edward Island and Newfoundland.
The growth in pipeline infrastructure reflects these trends in the producing industry. There are now well over 40,000 kilometres of pipelines under National Energy Board jurisdiction. Much of the recent growth has been from greenfield projects, involving acquisition of new rights-of-way. This can be contrasted with growth in the previous two decades, which typically involved looping existing pipelines.
Among the new greenfield projects are the Maritimes & Northeast Pipeline, which is taking place as we speak; the recently completed TQM extension; and the recently approved Alliance project. Also noteworthy is TransCanada and NOVA Gas Transmission Ltd. joining forces last year, thus creating the largest gas transportation company in North America.
The major oil pipeline system in Canada continues to be what was previously known as the Interprovincial System. Following a name change, this system is now owned and operated by Enbridge Pipelines Ltd. Enbridge is undertaking to reverse that part of its system between Sarnia and Montreal so that oil will flow in an east-to-west direction and allow refiners in the Sarnia area to import offshore crudes. Partial reversal will be in place by May 1 and full reversal is scheduled for October 1. Although reversal will provide access to offshore crudes to Ontario refiners, it will provide additional competition for crudes produced in Western Canada.
In 1998, energy commodities regulated by the NEB contributed export earnings of $23.4 billion. The main contributor was natural gas at $9.2 billion. This was the first year in history that gas export revenues exceeded those of crude oil.
Natural gas was even more notable on a net earnings basis. Because we import relatively small quantities of natural gas, it generated record net export earnings of $8.7 billion. Although the value of crude oil exports was down, so was the value of crude oil imports. On balance, crude oil exports contributed a trade surplus of $0.8 billion. In total, net energy exports contributed $13.7 billion to Canada's balance of payments.
I noted earlier that our board regulates certain physical activities in the non-accord frontier areas. Responsibility for the most active frontier areas -- that is offshore Nova Scotia and offshore Newfoundland -- lies with joint federal-provincial boards that have been established by way of agreement between the Government of Canada and those provinces.
As of November 23, 1998, the Yukon now has responsibility for regulating oil and gas exploration activity within its boundaries. The board has signed a three-year agreement with the territorial government pursuant to which we provide services to assist the government in fulfilling its responsibilities.
Interestingly, exploration activity is picking up in the Northwest Territories with 15 exploratory wells being drilled in the southern territories and another four at Norman Wells. A natural gas field is scheduled to commence production in the Ford Liard area later this year. Also of interest is a well that is expected to be drilled by Corridor Resources in the Gulf of St. Lawrence, close to the Madeleine Islands, in August. Along with two wells drilled on Anticosti Island, this represents significant interest in this basin.
The oil sector and the gas sector have been affected quite differently by recent market developments. The oil sector of the upstream industry had been hit hard by the slump in world oil prices. The average price of light crude oil exports fell about 30 per cent, from $26.60 in 1997 to $18.70 in 1998.
The WCSB has a lot of potential to increase production of heavy oil but the costs of producing heavy oil along with transport costs means that new production is extremely sensitive to price. The low prices have led companies to abandon many planned projects and to cut back on operating projects. Capital spending on oil-related projects in 1999 is expected to be well blow levels in 1998.
Fortunately for the upstream sector, natural gas prices have been holding up in Canada even though average North American prices are down considerably. This requires a bit of explanation. In part, this price stability has occurred because additional pipeline capacity has freed up natural gas that was previously trapped in Western Canada. This additional pipeline capacity has allowed more gas to flow out of the WCSB, contributing to somewhat higher domestic prices in the west. Thus, a state in which pipeline capacity has been inadequate has been rectified, bringing pipeline capacity in line with productive capacity. When the Alliance pipeline project is completed, it may well be that pipeline capacity actually exceeds productive capacity for a number of years.
I noted earlier the emergence, after decades of promise, of the East Coast as a major player. Oil production commenced at Hibernia in late 1997 and, despite a few operating problems, 1998 was a very successful first year of production. The annual rate of production from the Hibernia field is expected to soon increase to about $50 million barrels a year.
Construction is proceeding well on the Maritimes & Northeast Pipeline project and start-up of gas production is expected before the end of this year. Finally, as noted, drilling activity is on the rise in the southern part of the Northwest Territories.
That concludes my remarks on the general environment in which we operate. I will now discuss some of the current board issues.
As noted at the outset, our activities can generally be grouped into two broad categories. While both groups remain important aspects of the board's work, the proportion of time we devote to each has changed significantly in recent years. Economic regulation deals with all commercial matters, including the approval of tolls and tariff, access and competition issues and the approval of energy exports.
As we place increased reliance on market forces and as parties replace adversarial hearings with negotiated settlements, we are spending proportionately less time on economic regulation.
Physical regulation encompasses safety, environmental regulation and protection of property. This aspect of our activity continues to increase. The broader public generally becomes involved with board processes through concerns about the impacts of new pipeline projects on personal property and the environment; thus we include the topic of citizen engagement under physical regulation.
With respect to economic regulation, the underlying fact is that the large pipelines under the board's jurisdiction still have a large degree of monopoly power. Crude oil and natural gas shippers often have very few pipelines to choose from in shipping their product and, in many cases, have no choice at all. In this environment, regulation is required to ensure that rates are just and reasonable and that access is provided on a non-discriminatory basis.
A more general goal of the board is to promote the economic efficiency of the industry that relies on pipelines to move their products to market. The net earnings received by producers are directly affected by the price and quality of service provided by the pipelines. In its regulation of the pipelines, the board seeks to maximize the overall efficiency of the industry with the goal of maximizing benefits to Canadians.
Finally, oil and gas pipeline companies have invested large amounts of capital in fixed assets in the ground from which they earn a return over a very long time. The board also believes that these companies should have opportunities to earn a fair rate of return on their capital.
In recent years, the concentration of corporate power in the pipeline business has actually increased. TransCanada purchased ANG in 1994 and effectively merged with NOVA in 1998. Since NOVA was a major owner of the Foothills system, the effect of these ownership changes means that, at the moment, TransCanada controls almost all of the capacity to transport natural gas out of Alberta. Westcoast continues to be the sole transporter of natural gas to the Lower Mainland in B.C. When it is constructed, Maritimes & Northeast will be the only system to transport natural gas in Nova Scotia and New Brunswick.
When the Alliance system is completed, it will compete with Westcoast in the sense that both will be able to draw natural gas in northeast B.C. and, through anticipated connections east of Chicago, for the first time natural gas will be able to flow from Western Canada to Ontario and Quebec in a system other than TransCanada's. This Alliance will compete with both Foothills and TransCanada in transporting natural gas to the U.S. Midwest. It will also compete with TransCanada in Eastern Canadian markets.
The board has been accommodating new entrants by generally approving projects that would provide alternatives to existing pipeline systems after assuring itself that the benefits are not overshadowed by costs to third parties or to society.
In the last year, for example, the board has approved two applications for short pipeline projects in southwestern and southeastern Alberta, each of which would bypass the NOVA system.
The entry of new pipelines can potentially provide large benefits to gas shippers as they are provided with more choice, more service options, and the benefits that flow from competitive pressures between suppliers.
The incumbents have so far responded by, first, opposing the new entrants in the regulatory arena -- as examples, NOVA versus the bypass pipelines; Transcanada, Foothills and NOVA versus Alliance, and recently Westcoast versus B.C. Gas's Southern Crossing project.
In cases where the potential new entrant has won regulatory approval, the incumbents have sought to compete by seeking approval for rate flexibility -- for example, NOVA reduced its rates in the south to prevent a bypass being built by PanCanadian. Transcanada is currently negotiating for increased rate flexibility with its shippers in order to compete with Alliance.
The issues of new entry, residual market power and the potential impacts on the incumbents all raise challenging issues for the board. The board encourages parties to resolve as many of the issues between themselves as possible. However, we recognize that the playing field may not always be level, and, in these circumstances, one party or the other may feel that it requires the regulator's assistance. In many cases, however, the mere backup threat of a regulatory solution acts as an incentive to parties to resolve matters among themselves. The board is carefully monitoring this situation and stands ready to provide arbitration services if required.
Turning to physical regulation, the board has regulatory responsibility for public and occupational health and safety and protection of the environment when facilities or operations fall under the NEB Act or the Canada Oil and Gas Operations Act. Although the primary responsibility for safety and environmental matters rests with the owner of the facilities, the board ensures that the risks associated with design, construction and operation are properly assessed and managed by the facility owner and operator. The board continues to place emphasis on ensuring that regulated facilities and rights of way are appropriately protected, remediated or reclaimed and that landowner complaints or land rights issues are addressed.
Let me turn to some specific data regarding pipeline safety.
In 1998, a total of 78 incidents were reported on NEB-regulated facilities. This compares to 88 incidents the previous year and an average of 71 incidents for the years 1992 through 1998. Continuing a five-year trend of declining numbers of pipeline ruptures, only one pipeline rupture occurred in 1998. Ruptures are the major incidents that can potentially pose a significant risk to the public or to the environment.
Although the number of major incidents has been few and have been declining in recent years, approximately one half of the federally regulated oil pipelines and one-quarter of the federally regulated gas pipelines are more than 30 years old. In addition, the board's safety programs have become increasingly important and of more interest to the public. To address this situation, the board has developed new regulations and guidelines that reflect best practices, put more emphasis on monitoring both the construction of new pipelines and the integrity of the existing pipeline infrastructure, and promote the development of company pipeline integrity management programs. This last item is based on our experience of promoting company stress corrosion cracking management programs through diligent reviews and cooperative activities with key stakeholders.
The board's safety monitoring program is designed to ensure that the highest risks, in terms of public and occupational safety and environmental protection, are identified and managed by owners and operators.
With respect to Y2K, I am confident that the companies we regulate will be prepared for the transition to the new millennium. The National Energy Board has been formally promoting safety and environmental protection related to Y2K issues since May 1998. Our role has primarily been to encourage preparedness within the companies we regulate. The status updates and progress reports indicate that all companies are aware of the potential implications of the Y2K problem and that they are all at various stages in their Y2K preparedness programs. All companies believe that they are already, or will be, prepared for Y2K.
In December 1998, the National Energy Board collaborated with the Canadian Association of Petroleum Producers, the Canadian Gas Association, the Canadian Energy Pipeline Association, the Canadian Petroleum Products Institute, the National Contingency Planning Group, and Natural Resources Canada to issue one, common, industry and government Y2K preparedness questionnaire. We require each major pipeline company in Canada have a third-party assessment of their Y2K preparations. The reports on these assessments are due April 1, 1999. At that time, we will have an even better understanding of the state of preparedness and will intervene further as appropriate.
Internally, we have established a Y2K-2000 project office to ensure that our computers and imbedded systems are Y2K compliant.
As promised, I will now pass the witness role to our general counsel, who will describe issues related to an environmental assessment of NEB projects.
Ms Judith Hanebury, General Counsel, National Energy Board: The National Energy Board has a broad environmental mandate. It can undertake monitoring. It can do environmental inspections. Since our goal today is to talk primarily about current issues before the board, I will focus my comments on how the board is carrying out its dual mandate to consider the environment before it approves applications.
This dual mandate is nothing new. Before the Canadian Environmental Assessment Act (CEAA) came into place in 1995, the board was applying the EARPGO, Environmental Assessment Review Process Guidelines Order. As you can see, for a significant period of time it has had two mandates: the ability to assess the environmental effects of a proposed project under its own legislation, and also under environmental legislation.
The challenges have been more significant with the CEAA than they were with the EARPGO, as the later piece of legislation has a much more specific process to be followed in relation to environmental assessment. It provides for three levels of assessment: screenings, comprehensive studies, and panel reviews. The board has carried out assessments under all three possible processes.
Environmental screenings are the lowest level of assessment. They are usually used when you can consider it quite likely that the project will not have significant environmental effects. The majority of the assessments undertaken by the board under the Canadian Environmental Assessment Act (CEAA) are screenings, and 86 of those were undertaken during this year, the year ending at the end of this month.
Generally, screenings result in a written screening report, which is a public document that is available to all parties. We carry out screenings under the CEAA in the process of doing an assessment of the application under the Nation Energy Board Act. If the application is considered internally by the board, then the screening is done internally at the same time. If the application is for the kind of project that will go to public hearing, the screening is carried out in the course of that public hearing and there will be public involvement in that screening process.
The more challenging process for the National Energy Board is comprehensive study reports. When an application comes before the board that is more likely to have significant environmental effects -- and generally for us that has been pipelines that have more than 75 kilometres of the pipeline on a new right of way -- the project is subject to either a panel review or a comprehensive study report.
To date, the board has carried out one comprehensive study report and finished it completely, and that was in the case of the Alliance pipeline project, the new pipeline that went from northeastern B.C. down to Chicago. In that case, the board undertook the comprehensive study and the written comprehensive study report as part of its hearing process. The hearing went on for 77 days and, through the course of the hearing, environmental issues were brought forward and were examined by the parties and the board.
After the hearing closes, the board prepares the comprehensive study report, which is then sent to the Minister of the Environment. The minister then undertakes a process whereby she gathers comments on the report and decides if the project can return to the board for regulatory decision making or if it should go on to a panel review.
We have two more projects in front of us that are in the application stage. Both have triggered comprehensive study reports. The board has decided to try a different kind of process on a trial basis. In those two cases, namely, the Maritimes & Northeast Halifax lateral and Saint John lateral, the board is undertaking the comprehensive study report process prior to starting its regulatory hearing. The comprehensive study will be completed before the hearing ever starts.
In one of those cases, the Halifax lateral, the comprehensive study has been completed and has been submitted to the Minister of the Environment, who is now gathering public comment and considering whether or not that project will return to the board for regulatory decision making or will be sent to a panel review.
The board has also undertaken a number of panel reviews. These are generally held for the most significant projects where it is considered to be fairly likely that there could be significant environmental effects if proper mitigation is not put into place.
The first joint panel review under the new Canadian Environmental Assessment Act was undertaken by the National Energy Board. That was for the Express Pipeline Project, an oil pipeline going south out of Alberta, and it was a joint panel review held with the Department of Fisheries and Oceans. It resulted in a panel report, which then went out to the Governor in Council. That project was approved. The board also held a joint panel review with the provinces -- the Sable offshore and the onshore project -- and its panel was constituted and held its hearings during 1997. Again, the resultant panel report was sent to the Governor in Council. At this stage, there is one more project that the board has referred to the minister for a panel review. At this stage we are trying to decide what kind of process will be held to undertake that panel, namely, the Millennium Pipeline Project in southern Ontario, which involves a pipeline going under Lake Erie.
As a result, the board has covered the gamut of available types of assessment under the Canadian Environmental Assessment Act. As you may be aware, the five-year review of that act is coming up next year. The board will be participating in that process, looking at how it has been able to carry out its mandate under that act and also under the National Energy Board Act.
The other current issue facing the board that is tied to environmental assessment is citizen engagement. Increasingly, the board is finding that the public wants to be involved in issues before it, under both the Canadian Environmental Assessment Act and the National Energy Board Act. More and more, citizens have concerns related to detailed routes for pipelines, land, environmental and safety issues.
As a result, the board is always looking for new ways to involve the public in its processes. It has come up with a number of ideas. For example, there is now a 1-800 number. Access to the board for people across the country is facilitated. At no cost to them, they can contact board staff or counsel and put their questions to them.
In some hearings, we have held information sessions before the hearing panel actually appeared in the town or city so that the public would have an idea of how they can best participate in the hearing process.
Our process normally involves people registering ahead of time for hearings if they wish to appear, however, we have also established procedures in some smaller centres where people can register at the door. They fill out a form, are told approximately what time they may appear before the board, and then they do so. The paperwork involved in hearings has been cut substantially.
Finally, we have a Web site that we try to keep as up to date as we can. It has information available to the public on upcoming applications and hearings and how they can participate if they wish.
With those ideas and more that we are working on right now, we hope to increasingly respond to the public's concerns and encourage the public to be more involved.
With those comments, I will now ask to Mr. Caron to talk about corporate activities.
Mr. Gaétan Caron, Executive Director, National Energy Board: I will conclude our presentation this morning by giving you a view inside the NEB -- that is, who we are and by what are we driven.
We are a small to mid-size organization of about 265 people. We have a budget of about $28 million. A vast majority of our costs are recovered from the industry we regulate, except for our activities in frontier areas. For those of you who knew our old building in downtown Calgary, we have moved one block further west. Our current resource requirement is equal to the size we have in terms of people and financial resources.
The next slide is something we have borrowed from our strategic plan. It is the first time this year that we are talking about that openly in public because we are pleased with the result that was achieved by engaging the full executive and the board members in the last few months to invest in clarifying our direction.
I should like to show you our strategic plan. It is a sheet of paper, not a binder. Each and every employee of the board carries it in their personal folder. It is something that we feel strongly about because it is clear and it provides a common direction. We would be quite pleased to give the clerk of the committee a copy.
I should like to read the organization's corporate purpose. This is something that we say internally, which is meant to convey to our staff the basic idea as to how we should organize ourselves to serve the public. The purpose is that we promote safety, environmental protection and economic efficiency in the Canadian public interest while respecting individual rights, and within the mandate set by Parliament in the regulation of pipelines, energy development and trade.
We spent a lot of time sweating the details of the wording here. Its purpose is to unify the energy and the ideas of the entire staff of the National Energy Board.
Something significant happened last fall. A major chapter of the Auditor General's report was dedicated to the National Energy Board. The Auditor General made seven specific recommendations in respect of the National Energy Board. Of that number, three related to the way we handled our safety and environmental inspection programs; three recommendations related to the way we are internally managed; and one recommendation dealt with cost recovery.
When we saw the recommendations before they became public, we immediately accepted all of them. We found that the Auditor General did a good job in pinpointing for us the areas in which we needed to focus and invest more time. As a result of adopting all of their recommendations, we now have an improved database and an improved capability to monitor compliance with our conditions in the certificates and orders that we issue respecting pipeline construction and operation.
We have improved the way we look at organizing our inspection programs, increasingly taking into account the risks that specific situations entail. That was covered in part by Mr. Vollman earlier in our presentation.
We have also engaged with industry in a discussion as to how we can improve the method under which we recover our costs. We have also strengthened the way we manage our human resources. Last, we have nearly completed the scoping of a program evaluation of the board -- something we do not recall ever having done and something we do not do very often -- to take a hard look at the program's value to Canadians.
Part of the strategic plan is a section on the key goals, which we at the board believe in as we look forward. That again is something that is widely distributed throughout the organization and is something we wish to talk about publicly. Those are the images we should like to create in the next three years. This is the outcome and the impact we should like to have. We are asking everyone at the National Energy Board to focus on planning and projects.
First, we want National Energy Board facilities to be safe, and to be perceived to be safe, and to be demonstrably safe. Second, NEB regulated facilities are to be built and operated in a manner that protects the environment and respects individual rights. Third, we want Canadians to derive the benefits of economic efficiency, which were covered in-depth by Mr. Vollman. Fourthly, we want the NEB to meet the evolving needs of the public to engage in National Energy Board matters.
This completes my presentation on what is going on inside the National Energy Board as we seek to better serve Canadians. We have a three-year strategic plan and we have the entire organization focused on actually creating the outcomes we have stated in our strategic plan.
Senator Kenny: Welcome. It is good to see the National Energy Board back before the committee.
It seemed to me that since oil prices are particularly low, it is a good time to talk about what we might do in the event of a supply shortage. Given that, what responsibilities does the board have, either under your statement of corporate purpose or under your regulatory responsibilities or your advisory responsibilities in the event that Canada should face oil shortages?
Mr. Vollman: Senator Kenny, I am not sure that we have any specific responsibilities, however, the board is continuously reviewing energy developments in Canada. If we saw problems, it would be our responsibility to advise the government.
I read the transcripts. A similar question was asked in 1997. I am not sure I have much to add, except that the environment has changed dramatically from the 1970s. I was involved in those days in energy security concerns. As you well know, at that time OPEC had a dominant position in international oil markets and could pretty much hold to hostage other countries.
OPEC's significance on the world stage has diminished since then. I believe I saw recently that OPEC now controls only 40 per cent of world oil production. It is a much more competitive market internationally now and there are fewer opportunities for disruption.
I spoke about this becoming a national industry. We have our own production off the East Coast of Canada, with oil at Hibernia, and increasingly we have gas on the Scotian shelf. As I look to the years ahead, we will see an even stronger industry. The diversification of supply sources in Canada is a large part of the answer to your question.
Senator Kenny: I have some difficulty with your reply. Perhaps you can help me with my problem. As you are aware, we have an agreement that in the event of an energy shortage, we, as a net exporting country, would have an obligation to increase our exports to try to make up for shortfalls. However, half of the country is in fact importing. With the Montreal-Sarnia line being reversed, that half is growing larger, not smaller.
Your comfort with the new discoveries off the East Coast does not give me a great sense of security because none of that oil is being landed in Canada. I know of no plans for it to be landed in Canada and I know of no capacity to refine it should it be landed in Eastern Canada. Why do you feel this greater sense of comfort?
Mr. Vollman: I was trying to indicate that it is not just an oil question, it is an energy question. Increasingly, energy markets in Atlantic Canada will be fuelled not only by oil but increasingly by natural gas, which will decrease your dependency somewhat. If there was a need to do more in this area, I suppose it would be a policy responsibility. I am trying to help you as much as I can, as an expert working for the National Energy Board.
Senator Kenny: I accept the fact that, as you diversify your energy sources, more and more functions will be taken over by gas rather than oil. However, that is not much comfort to those people who live in Eastern Canada and will still be dependent on offshore oil. We have no policies or any requirements under the agreement to provide for stockpiles in the future in the event of these shortages. The other countries involved that are net importers, which everyone east of Sarnia will be shortly, require some reserves.
It is not a problem that we all wake up in the morning right now worrying about, however, it is also not a problem you will solve overnight. Now is a good time to worry about it, I would think.
Mr. Vollman: I am not sure I can really add much more. As you identified, it is a policy issue. The department officials looking at that would need to assess the risk of disruption, the costs of maintaining a strategic reserve. However, as a regulatory board, it is not something in which we are involved.
Senator Kenny: As part of your role as advisor to the minister, you would not see that as being an area where you would volunteer advice?
Mr. Vollman: We can contribute an understanding of the issue. We did not build into our presentation the fact that we are currently engaged in an update of our long-term energy supply and demand projections. The last comprehensive study our board released was in 1994; therefore, it has become quite out of date. We have been engaged in two rounds of public consultations in eight major Canadian cities beginning last fall and continuing this year. That report, which will be available I believe in June 1999, will provide much data that policy makers may use to address the kind of question you are asking.
Senator Kenny: My last question on this subject would be in terms of East Coast oil development. Do you see any likelihood of the oil being produced there going anywhere other than to American refineries? Do you see any likelihood of us ever using any of the oil that we are producing on the East Coast, refining it in Canada and using it here?
Mr. Vollman: Individual refiners would make those decisions. I am sure you understand the pipeline connections. Oil could be landed at Portland and move up through the system and the reversed IPL Line 9 and could thus access virtually all of the central and eastern Canadian refiners.
Senator Kenny: You were talking about doing your overall energy review. In the course of doing the review, has anyone made any such comments as: "At some point, we might want to change one of the refineries or convert a refiner. We are thinking about the possibility of using this as a domestic source. We see this continuing to be an export to the United States. Therefore, under NAFTA, we will be caught in that role for sure if there is a emergency"?
Mr. Vollman: Subject to check, it is my understanding that our people have not tried to match specific grades and sources of crude to the future demand of refiners. They have been looking at the overall balances.
The Chairman: It was always my understanding that one of the board's responsibilities was to ensure security of energy supply for all Canadians. I can recall studies relating to the regulation of our gas exports, for example, to ensure that we have on hand a 20-year supply. I am surprised by your answer to Senator Kenny. I always looked to the board for that advice to Canadians to ensure that we had a secure supply of energy. Unless I am misinterpreting you, are you now suggesting that is no longer a high priority for the board?
Mr. Vollman: Perhaps I can clarify my earlier comments. You are quite correct in saying that the specific wording of the act refers to ensuring that any oil or gas exported is surplus to the reasonably foreseeable requirements of Canadians. The way in which the board carries out that mandate has changed quite markedly in the last decade. Prior to 1985, it was referred colloquially to the "cans-on-the-shelf approach," which referred to the holding in reserve in Canada a certain multiple of the current year's demand or some future year's demand.
With the deregulation that occurred in the mid-1980s, our program is more forward looking. I suppose you could say that it is really an early warning system. We have a number of mechanisms. Every few years, we prepare a long-term energy supply and demand report.
Before anyone can obtain a licence to export oil or gas, they must file an application with us. It is advertised. Any Canadian who feels that they are not able to obtain oil or gas on similar terms and conditions can make their objections known to us.
In those hearings, we examine something called an "export impact assessment," which, again, is forward looking. We look at the consequences of the proposed export on the future ability of Canadians to meet their own needs.
It is in that fashion that we are carrying out what you suggest, Mr. Chairman. It is very much forward looking. It is a type of early warning system; it is not intended to keep a particular inventory in the country. Of course, that approach is a result of an agreement between the federal government and the provinces. It was not a shift led by our board.
Senator Taylor: You have mentioned that the figure for OPEC is 40 per cent. If something were to go wrong and they withdrew that 40 per cent out of the Middle East production, that would create a huge demand, and as a result the price of oil would skyrocket. It seems to me that we, then, would be in a worse position since you have reversed the Montreal to Sarnia line. Instead of leaving poor old Montreal without oil, you would be leaving poor old Toronto without it. We cannot have that happen in Canada. The chain reaction would be much worse.
Mr. Vollman: I was not involved in the hearing that considered the reversal of the Sarnia to Montreal pipeline.
Senator Taylor: That does not leave you off the look.
Mr. Vollman: I was using that as a lead-in to say simply that I understand those issues were discussed in that hearing and that they were taken into account.
Senator Buchanan: Mr. Chairman, this is not the first time I have met with people from the National Energy Board. In another life, for 13 years, from the 1970s right up until the early 1990s, I met with them.
One point has not been made. From the late 1970s to the 1990s, the very firm foundation for what is now happening was laid by a great government of Nova Scotia. We set the parameters. I signed the first agreement with Pierre Trudeau. The second one was signed in 1986 with Brian Mulroney. That was much earlier than the one signed by Newfoundland, which followed Nova Scotia, a normal thing for Newfoundland to do.
In addition, I want to correct one other thing. The drilling for natural gas and oil commenced offshore Nova Scotia back in the late 1960s and through the early 1970s. You were with Mobil at the time. I was out on Sable Island in the early 1970s when the drilling was taking place. We go back a long way in this whole business.
I wish to correct one other thing mentioned this morning about Hibernia being the first to produce oil. That is not true. The first oil production was off Sable Island. The very first oil production offshore Canada was offshore Sable Island, which is part of Nova Scotia. This was stipulated in the 1982 agreement. I told Marc Lalonde and Pierre Trudeau at the time that Sable Island was to Nova Scotia what the Falklands were to Britain and that they had to put that in the agreement.
The first natural gas is coming ashore because of the work we did in the 1980s, and it will be from the Sable Island fields. I ask you to keep that in mind.
I wish to discuss the issue of pipelines. It is interesting that the Maritimes & Northeast pipeline and the Sable Island pipeline will be from Sable Island fields to Guysborough County. Then the Maritimes & Northeast takes over and goes as far as the state of Maine. I would like to ask you one question, though. You mentioned the lateral to Halifax. There is another lateral that is a bit controversial; that is the lateral from the Strait of Canso to industrial Cape Breton. I am this way and that way about it because I am a long-time champion of the coal industry and a native Cape Bretoner, as senators know. The National Energy Board will also be looking at that lateral, if and when it takes place, and at the Halifax lateral.
Why is the National Energy Board looking after the regulations about those laterals? Has the Government of Nova Scotia transferred responsibility for that to the National Energy Board?
Mr. Vollman: There are many issues with respect to jurisdiction. The simplest answer to your question is that those laterals are being built by Maritimes & Northeast. In other words, company ownership, from a jurisdictional point of view, is probably determinative and that is why Maritimes & Northeast applies for certification.
I am not clear. It may be that the Province of Nova Scotia is issuing mirror authorizations in respect to those lines.
Senator Buchanan: That is probably right. It appears to me that the jurisdiction that we looked at back in the 1980s was to have the laterals within a province fall under provincial jurisdiction. They probably will do some kind of mirror legislation as we did with the offshore agreements in our legislature and here in Parliament.
Mr. Vollman: So far that has worked well. That model has continued into the joint panel review. Rather than arguing about jurisdiction, work was done cooperatively.
Senator Buchanan: Bob Fournier was an excellent choice. I appointed him as the first chairman of the Science Council of Nova Scotia. He did an excellent job there and for the NEB in Canada and in Nova Scotia.
Under the 1982 agreement, we were able to get the federal government to agree that Nova Scotia could have an option to own any amount up to 50 per cent of all pipelines offshore and onshore to the New Brunswick border. That has gone by the boards because the present government has decided not to bother with it.
Were you aware of that?
Mr. Vollman: Yes, I am aware of it because it was mentioned during the joint panel hearings.
Senator Buchanan: I wanted to point out that bad move on the part of the present government.
Senator Taylor: My understanding is that the pipeline from Sable Island to onshore is not a common carrier; Mobil has exclusive ownership of it and controls whose gas is put through it. Is that correct?
Mr. Vollman: I think you are correct, Senator Taylor. At the moment, access to the pipeline is by contract.
Senator Taylor: You state that you want to see competition and you want the consumer protected in the long run. Why would the National Energy Board not force that line to be a common carrier? That would do two things. It would ensure that gas is delivered as cheaply as possible to the shoreline. It also would open up other areas adjacent for gas and oil exploration.
Rockefeller learned long ago that if you get them to buy the pipelines, their minds and hearts will follow. In other words, no one will look for oil and gas in a particular area unless they are sure they can have a fair share of the market. They will not like having to pass through the pipeline of a wholly owned competitor who may say that they will pick up their gas 25 years from now or buy it at 10 cents on the 1,000.
Why did you let that develop?
Mr. Vollman: That is a very good question. I think the general counsel will confirm that it is a requirement of our statute that oil pipelines provide carriage to all comers.
Senator Taylor: That does not apply to gas pipelines?
Mr. Vollman: Gas pipelines are contract carriers. Oil pipelines are open; they are common carriers under the statute.
You must then apply that in practice. The board has used a variety of techniques to satisfy the statute. It relates to financing. Who will put up the dollars and who gets the benefits?
On the Express pipeline, for example, parties contracted for service. That is the pipeline that runs south from Alberta. The majority of the capacity is contracted to shippers but the board required that there be a certain cushion at the top that was available to anyone else who wanted to ship.
Senator Taylor: There is no cushion in Sable Island?
Mr. Vollman: Sable Island is a gas pipeline. Under our statute, gas pipelines are contract carriers.
The issue of providing service to others came up during the joint panel hearing, but no one has come forward wanting to ship on the line. The owners, in that hearing, as I recall the evidence, were open to dealing with anyone who wanted capacity.
Senator Taylor: It could be reopened.
Mr. Vollman: The line can be expanded simply through the addition of compression.
Senator Taylor: I have many more questions.
Senator Spivak: My question deals with the environmental assessment process. Are you looking at the cumulative impact of drilling, roads and pipelines?
Senator Taylor attended a forestry conference in Edmonton on which I, too, received information. They discussed northern Alberta and the quite devastating impact on the boreal forest of this activity. Do you consider cumulative impacts, rather than just project-by-project assessments?
Ms Hanebury: Under the Canadian Environmental Assessment Act, we are required to look at cumulative environmental effects and we do so. It would vary from case to case as to what the scope of those cumulative effects would be. Oftentimes, the upstream development may be done at a different time frame and not directly tied to the pipeline. Sometimes it could be tied to the pipeline. Each case must be looked at on its own facts. The Alberta Energy and Utilities Board is looking at this very question: How should we consider the overall picture of cumulative effects, looking at drilling, pipelines, forestry and so on?
An examination of cumulative effects on that broad basis has not been done by the numerous government departments and agencies in the way it should be. That issue has really come to the forefront in the last little while.
Senator Spivak: Your particular institution then is not yet evaluating the past impacts so as to foresee the future impacts. According to some sources, the impact has already been quite devastating to the forests.
Ms Hanebury: Absolutely, and when we look at the pipeline applications before us, we will look at the cumulative effects of past developments and proposed future development in the subject area. Yes, we do that.
Senator Spivak: Is it possible, hypothetically, that you might refuse, change or amend a particular proposal based on past history and the impact on the forests and on the navigable waters, the streams and rivers?
Ms Hanebury: Fragmentation of habitat is definitely a concern, and yes, there is the possibility of an application being turned down or another route being considered because of that, or perhaps because of problems with siltation in a river. That would be a situation where crossing the river at a particular point could increase the siltation, and where other future projects could add to that problem.
If you are asking whether or not a cumulative-effects assessment could result in either mitigation measures being instituted or a pipeline being disallowed, the answer is yes.
Senator Spivak: Are carbon-dioxide emissions and global warming also factored in during the assessment program, and have they been in the past? For example, it has been suggested that the oil sands produce a much greater degree of emissions than other kinds of development. It does not seem to have made any impact there.
Ms Hanebury: You must remember that we primarily regulate transportation and the emissions from that sector are not as significant as those from production or the burner.
Senator Spivak: You are not involved in the issue of production emissions?
Ms Hanebury: Generally speaking, no. We look at emissions from two points of view. The first is to try to minimize the primarily fugitive emissions. We also look at those emissions on a cumulative-effects basis in relation to the "air shed" where they are occurring. For example, we can require, and have required, companies to set up equipment to monitor that air shed, and then report those results to us, to ensure that their emission predictions are correct and that the cumulative effect is not going to be unacceptable.
The Chairman: The Government of Canada made a commitment in the Kyoto accord, and you have some expertise in understanding the impacts of that accord on the oil and gas industry. Has the federal government asked you to participate in their deliberations and committees on how we can achieve the Kyoto accord targets and also relative to the impact that achieving those targets will have on the industry?
Mr. Vollman: Perhaps I will begin and Ms Hanebury can add to my remarks.
Last fall we invited Mr. Oulton to come to Calgary and speak to us about how Kyoto was expected to impact the activities of our board and whether there was anything we could do to assist his office. We had a good meeting with him, but at that time there was nothing he could tell us. Subsequent to that, we did receive a request for assistance, and we will be providing Mr. Oulton's office, and the department, with the long-term projections of energy supply and demand that we are preparing. They will then use their expertise to calculate the emissions for those various energy projections. Other than that one request for assistance, I am not aware of anything else.
Ms Hanebury: We have already provided the preliminary results of our studies to Natural Resources Canada and I think that is all we have been asked for so far.
The Chairman: Have you ever contemplated conducting hearings to allow the industry to present its overview of the potential impact of the Kyoto accord and steps which could be taken to meet those targets? It seems to me that there should be a forum for members of the industry to express their points of view. Have you ever considered establishing such a forum?
Mr. Vollman: We have not done that specifically, but it was for those kinds of reasons that we invited Mr. Oulton to visit us last fall. We wanted to find out how we could be of assistance.
The Chairman: It seems to be very limited at this time.
Mr. Vollman: There is just that one example to date.
Senator Adams: The National Energy Board is in Calgary. The new territory of Nunavut will be proclaimed in another week and a half, but Bill C-62, dealing with water resources in Nunavut, has still not been passed by the House of Commons. In the future, will Nunavut be considered like any of the provinces for the purposes of permits for exploration and so on for oil companies?
Mr. Vollman: I am assuming that the same path will be followed as with the Yukon. Once there was devolution to the Yukon, we naturally backed off, but continued to offer our services. A lot of specialized expertise is required to handle drilling and production programs and it is difficult to have all those people on-board if you only have a small mandate. We have provided all our technical services to the Yukon government even though it has jurisdiction. A few months ago, I met with the premier of the territorial government and made the same offer to him. Once they have the jurisdiction, we will be pleased to continue providing technical services. Does that answer your question?
Senator Adams: Yes. I do not know what system the Nunavut government will establish. We currently have a lot of mining companies interested in doing exploration and drilling up there. The Beaufort Sea exploration has been shut down since the 1980s, but the Inuvialuit have quite a number of exploration interests on the mainland with companies like Shell and Imperial Oil. What will happen if those types of oil companies, which are owned in partnership with the Inuvialuit, apply for a drilling permit in that area, say around Tuktoyaktuk or Norman Wells?
Mr. Vollman: At the moment, we are still involved, Senator Adams, and there is one fairly significant development that we did not include in our presentation. Last year, we approved development of a pipeline to Inuvik. I think probably by this summer, there will be gas service in the town of Inuvik, mostly to power electric generation, but also for residential customers. At the moment, we do supervise those kinds of projects.
Senator Hays: I want to briefly revisit your exchange with Senators Kenny, Ghitter, and Taylor on the issues of proportional access commitment and Canadian security of supply in a short-supply situation.
I fully appreciate that the orderly development of oil and gas resources has been very beneficial for North American consumers, even world consumers. The deregulated market environment in which we operate serves us very well.
However, we used to worry a lot -- and you referred to it -- about the requirement of deliverable surplus prior to authorizing export permits.
Let me put this to you. Let us assume that we produce 2 million barrels a day and export 1 million barrels to the U.S. We are a net exporter. We do not have a strategic petroleum reserve or stockpile and we have reversed line 9, Sarnia. We have undone a lot of the things we did earlier to assure ourselves a secure supply. Your answer was "Yes, this is a concern, but we have an evolutionary approach to dealing with the problem." I am looking for a few words of comfort, having acknowledged that the operating environment is very favourable for the energy industry, and for consumers in terms of the price they pay.
Are we okay on this short-supply issue and have we negotiated exemptions from proportional access? For example, have we suggested that was a good idea on Hibernia, or do we have access to the USPR in case of a short supply? Make me feel good about where we are on that issue, assuming the Balkans blow up and all these tankers are, as they were in a earlier time, sent to destinations other than Montreal, and so on.
Mr. Vollman: I hear the plea for more comfort but I am not sure there is much more I can add.
It is significant that worldwide exploration has progressed and basins have been found in many non-OPEC areas. There is a much lower probability of the kind of embargo impact that we were all worried about in the early 1970s since that source of supply is now less than half of the world production. That is an important aspect.
We should also take some comfort from the diversification of the energy sources in this country and the development of an Atlantic industry. Whether that obviates the need for action aimed at some sort of reserve is a little beyond my area of expertise and is probably a question that should be put to energy policy officials.
Senator Hays: Do you have any advice for them? I do not want to put you in an awkward position, but are you and your board, to the extent you can speak for it, happy with the current situation when anticipating a short-supply problem? Perhaps it is fine and will never happen, in which case, to provide for it at any great expense would be adding to the cost of energy and a waste. However, in a stable energy supply environment, there are things that one can do quite easily to anticipate that. I am assuming that you monitor that and that we would not be stuck in Atlantic Canada, for instance, where we have considerable investment of public moneys to bring on oil and gas supply. I am not so much worried about gas supply, although it is also an element. If we were in a short-supply situation, that would give some comfort to the Atlantic region.
Mr. Vollman: As an expert in the area of supply, and someone who worked in it for the best part of 30 years, do I feel alarm bells should be pressed and that we need to do something about security? The answer is no. We talked about Hibernia. Terra Nova is close behind it and other fields will be found off the East Coast. There really is a new petroleum province being opened in Eastern Canada.
Senator Hays: That is how Senator Kenny introduced the subject. To my knowledge, we do not refine any of that product. It goes to the U.S., which is fine, but if it is subject to proportional access and we had short supply, would that be of any benefit to Atlantic Canada? That is, other than the possibility that, over time, additional exploration could aid in locating additional resources, or perhaps more rapid development that might be exempt from proportional access could occur.
I think you are on the record as saying that things are okay, but I would like to press you further.
Mr. Vollman: You want to know if the characteristics of the crudes off Newfoundland match the needs of Canadian refiners.
Senator Hays: I appreciate the fluid nature of the issue. Exemptions from proportional access were introduced for some portion, or the equivalent of a USPR, if we thought that was necessary. Do we worry about that?
Mr. Vollman: I am sure some of our experts at the board have some additional knowledge, so if the committee wishes, perhaps I could provide a written response to your question. I think I have probably exhausted my personal knowledge.
Senator Hays: Thank you for being here. This is an annual event that we always look forward to and the willingness of you and your staff to participate is very much appreciated.
The Chairman: Perhaps I need comfort in another area. I have concerns about the health of the oil and gas industry in Canada. I see what has occurred in the regions where Senators Hays, Taylor and I live, and also in Calgary. I have seen another rationalization of the industry. I see a cheap Canadian dollar that is allowing Canadian corporations to be bought out by American interests. I see a continuing economic analysis of the value of our commodity at rather less than we would like, notwithstanding the slight increase we have seen as a result of OPEC's actions in the last week. I see a growing concern across the country about the health of the oil and gas industry in our nation. Do you share those views? Do you feel that we are in for a period of low oil prices that will have a negative impact? Does that mean that our tar sands will not be developed in the way that has been anticipated and announced by various corporations? Can you give us an overview of my concerns?
Mr. Vollman: It focuses on oil price as the driver. That subject attracted a lot of interest in these cross-Canada consultations that we have been holding.
The proposal that we took to the communities we visited was for an oil price around $18 a barrel by the year 2000.
Senator Taylor: Canadian?
Mr. Vollman: No, that is West Texas Intermediate, WTI. That would be relatively constant in real terms at $18, and sensitivities at $14 a barrel and $22 a barrel.
Surprisingly, the vast majority of the experts we consulted were comfortable with an outlook of $18 per barrel. Oil prices have been very volatile. One can become dismayed about what happened late last year, but they have already recovered from $11 to the $13 or $14 range. We still think a long-term projection of $18 a barrel WTI is reasonable, and we expect that it will recover to around $16 a barrel by the end of 1999.
The Chairman: What about gas prices?
Mr. Vollman: We are looking at a few scenarios. I am trying to go by memory. One scenario has gas staying fairly constant at around $1.60 for quite a number of years. This is a plant gate price in Canadian dollars. We then have another scenario where gas would increase to around $3.50. It is quite a gradual increase over the period to 2025.
The Chairman: That is consistent with what we heard in Washington about their projections when meeting with their energy people.
Senator Cochrane: When you mention Hibernia, there is a bell ringing somewhere about the fact that a small portion of the oil goes into the Come-by-Chance refinery, does it not?
Senator Taylor: There is.
Mr. Vollman: I thank Senator Taylor for that, because I did not know the answer.
Senator Taylor: That has been a pet peeve of mine. Petro-Canada at one time raised concerns about using those broken-down old refineries in Montreal. They sold to the Americans, believing that anything that was refined must go to the U.S. market. Come-by-Chance is a nice refinery. It has been sharpened up and markets into the Carolinas. Usually it uses Hibernia crude, however, when you buy crude from an offshore platform you must take tanker loads. It depends on how you are sitting at the time, whether you use it and how you mix it.
Senator Cochrane: I wish to go back to your industry environment slide in regard to the position of the oil industry. Exports, drilling activity and cash flow are down; there are mergers; and they are just in survival mode. My understanding is that today OPEC will make an announcement about some cutbacks in oil production and so on in some of the countries. Will that have any impact on our oil companies?
Mr. Vollman: Oil, of course, is a globally traded commodity, therefore, any actions by OPEC will necessarily have an effect. In order to understand that effect, you must remember that first of all that their relative position in the world oil market is diminishing each year. Second, there is always cheating on established quotas. The answer is yes, however, you must temper it with those two doses of realism.
Senator Taylor: I am wondering whether the National Energy Board is doing anything on the Kyoto agreement respecting the question of CO2; not only in relation to the emissions, but you can sequester a great amount of CO2 in some of those coal beds around the world. As a matter of fact, I can imagine Nova Scotia making a fortune out of allowing the rest of Canada to get rid of the CO2 in their coal beds. Is the National Energy Board doing anything on Kyoto? What you think about that process?
Mr. Vollman: We are not specifically doing anything as a regulator in response to Kyoto, however, in terms of some of these technological developments, we try to stay current. CO2 sequestering in coal formations, which is one of the topics you mentioned, appears to be a very appealing one because, of course, what happens when you sequester the CO2 in the coal seam is the methane is released because the CO2 preferentially attaches to the coal.
We are certainly aware of that scientifically. I am also generally aware that federal-provincial money is going into research in that area. Although I cannot speak to the details, I know that our staff is working on this. We have a large infrastructure in place in the province and many of the wells that were drilled to gas formations passed coal seams on the way down. When the gas formations are depleted, the wells will be a relatively inexpensive way to get access to some of those coal seams.
Yes, we monitor some of these technological developments. However, we are not doing anything as a regulator per se as a result of Kyoto.
Ms Hanebury: The one thing I might add is that in the supply demand report that we are working on right now, there is information, as we mentioned earlier, which might be interesting to people who are working on those issues. One of our cases is a high-technology case, which will be sensitive, for there is a much greater use of renewable or alternative resources. We will be doing greenhouse gas emissions with that case and with that sensitivity. That information, I believe, might be of use.
The Chairman: We appreciate your appearance before our committee to share with us your views. As we saw from the chart, Canada's oil and gas exports are so substantial and so important to our nation, we need a healthy oil and gas industry. With $25 billion in exports, your responsibilities are very important. We feel secure with your leadership and we thank you for being with us today.
Mr. Vollman: It was a privilege to be invited, and I hope we performed well enough that we will be invited back next year.
The Chairman: We look forward to it every year.
The committee adjourned.