Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 48 - Evidence - June 13, 2013

OTTAWA, Thursday, June 13, 2013

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the current state of the safety elements of the bulk transport of hydrocarbon products in Canada.

Senator Richard Neufeld (Chair) in the chair.


The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld and I represent the province of British Columbia. I am chair of this committee. I would like to welcome honourable senators, any members of the public with us in the room, and viewers all across the country who are watching on television. I would ask the senators to introduce themselves, and I will begin with Deputy Chair Grant Mitchell from Alberta.

Senator Ringuette: Pierrette Ringuette, New Brunswick.

Senator Lang: Dan Lang, Yukon.

Senator Seidman: Judith Seidman from Montreal, Quebec.

Senator Unger: Betty Unger, Edmonton, Alberta.

Senator Patterson: Dennis Patterson, Nunavut.

Senator Wallace: John Wallace, New Brunswick.

The Chair: Thank you. I would also like to introduce our staff, beginning with the clerk, Lynn Gordon, on my left, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.

On November 28, 2012, our committee was authorized by the Senate to initiate a study on the safe transportation of hydrocarbons in Canada. The study will examine and compare domestic and international regulatory regimes, standards and best practices relating to the safe transport of hydrocarbons by transmission pipelines, marine tanker vessels and railcars. Our committee has held 16 meetings on this study to date. We have also travelled to Calgary; Sarnia; Hamilton; St. John, New Brunswick; Halifax and Point Tupper, Nova Scotia for fact-finding and site visits.

In the first segment of our meeting today, I am pleased to welcome from the National Energy Board, Iain Colquhoun, Chief Engineer; and Patrick Smyth, Business Unit Leader, Operations. I believe you have prepared text. I leave it with you to present that, and we will go to questions.

Patrick Smyth, Business Unit Leader, Operations, National Energy Board: Thank you. Yes, I do have prepared text and I will go through that.

Good morning, honourable senators. Thank you for the opportunity to appear before this committee to provide details on how the National Energy Board works diligently to keep Canadians safe and protect the environment.

We do this through our regulations that set the framework for safe pipeline operations; the compliance verification activities that seek to proactively prevent incidents before they occur; and when required, the enforcement actions that hold the energy sector accountable.

The NEB has over 80 staff dedicated specifically to compliance monitoring and enforcement. This includes 35 qualified engineers and technologists and over 30 designated inspections officers. NEB inspectors in the field have extensive powers if they believe that a company's operations are a threat to public safety. This includes immediately shutting down an operation until they are convinced it can be conducted safely. Each and every inspector is empowered by the board to put public and environmental safety ahead of any other consideration, including scheduling or financial cost.

The NEB believes its strength lies in both its expert staff and comprehensive regulatory framework. We are confident that we have the tools we need to get the job done.

Regarding the role of the whistle-blower, the NEB recognizes that even with a solid regulatory framework in place, our staff cannot be everywhere at every moment. That is why we applaud the actions of concerned individuals, such as Mr. Vokes, for voicing their safety concerns with companies internally and, when necessary, for bringing them to the attention of the board.

In May 2012, the board received a written submission from Mr. Vokes, outlining potential non-compliances he had observed at TransCanada pipelines. The board's first concern was to confirm with Mr. Vokes that there was no immediate threat to people or the environment.

Following this, based on the information presented by Mr. Vokes, in June 2012, senior NEB staff, including my colleague, Dr. Colquhoun and me, met with TransCanada executives to lay out the allegations and communicate how seriously the board took them. At that meeting, the NEB directed TransCanada to provide a variety of documents for board review, including information relating to TransCanada's own internal investigation into Mr. Vokes' complaints.

Based on the information brought to the board's attention by Mr. Vokes, together with the NEB's own internal review, the board decided to focus the scope and advance the start date of an already scheduled audit of TransCanada pipelines to include the specific concerns raised by Mr. Vokes. These include determining if TransCanada's practices around welding inspections and non-destructive examination meet NEB requirements to be performed by a certified, independent third-party reporting directly to TransCanada; examining the revisions TransCanada made to its internal engineering guidance, and whether the revisions met NEB requirements; finding out what corrective actions had already been implemented, based on the findings in TransCanada's internal audit; determining if TransCanada's revised inspection processes met the requirements set out in the Onshore Pipeline Regulations, 1999; evaluating TransCanada's training program for inspectors on new, non-destructive examination procedures; and reviewing the job description of the new quality assurance, quality control procedures and their responsibilities.

With respect to the audit, since November 2012, NEB inspectors and auditors have visited field facilities and TransCanada's head office, auditing the adequacy and effectiveness of TransCanada's integrity management program, as well as its compliance with the National Energy Board Act, other regulations, and industry standards such as the Canadian Standards Association.

The targeted audit is extensive and includes all of TransCanada's NEB-regulated subsidiaries.

The NEB is in the process of completing its audit of TransCanada pipelines and expects the final report to be released to all Canadians in September of this year. As with any in-depth review, the National Energy Board will take the time required to conduct a thorough evaluation of the company's operations.

We understand this issue is of public concern. The NEB has committed to making its compliance and enforcement actions public, and we are working diligently to have this information available as soon as possible.

Looking to the future, as stated previously in front of this committee, the NEB is committed to continual improvement and expects its regulated companies to demonstrate a similar commitment. Last week the NEB hosted a safety forum in Calgary to discuss the way forward to improve the safety of Canada's energy infrastructure. At this forum, CEOs from five of Canada's major energy companies, including TransCanada's CEO, agreed that in order to maintain public confidence, they must strive for zero incidents.

The NEB has the same expectation of all regulated companies and will hold industry leadership accountable to that commitment.

In the federal budget of 2012, Parliament entrusted the NEB with an additional $13.5 million to increase its safety footprint. The NEB committed to doubling its comprehensive audits and increasing inspections by 50 per cent. Last year the NEB went even farther and exceeded its goal of 150 inspections, demonstrating its commitment to enforcing Canadian regulations supporting pipeline safety. This is in addition to the 491 other compliance activities conducted by the board, such as technical meetings, investigations and emergency response exercises.

The NEB has also recently amended what is now called the National Energy Board Onshore Pipeline Regulations.

Among the changes was a further clarification around the board's expectations for management systems. As a part of this, regulated companies must now have an internal reporting structure that will allow employees to bring forward any hazards and risks they may encounter during their work activities, without fear of reprisals.

This means the NEB will be able to take concrete enforcement actions if it determines that a company does not have an internal reporting policy for hazards, incidents, or near misses in place.

Due to reports from concerned individuals such as Mr. Vokes, the NEB has identified the need for a regulatory whistle-blower hotline. As of last year, the board has been operating a telephone and email hotline that is monitored 24 hours a day, seven days a week, by NEB personnel. This hotline was developed specifically for individuals who may have important safety information or concerns to pass along to the board. These individuals have the choice to either provide their name or remain anonymous, but the NEB investigates every tip that is passed along to verify there is no threat to Canadians or the environment. Should a safety or environmental risk be found, the NEB will take immediate action to address it.

The NEB will soon have the ability to issue administrative monetary penalties. This new enforcement tool will allow us to issue financial penalties to companies, third party contractors and individuals for violations of the NEB's safety and environmental protection regulations. We will be ready to implement this new tool in July 2013 and recently issued a draft process guide on it will be used. This is yet another tool available to the board to enforce compliance.

In closing, the board expects all of its regulated companies to proactively identify risks in order to address them before they become safety or environmental incidents.

Companies make this intrinsic commitment to Canadians the moment they begin operating on Canadian soil. The NEB's job is to set high safety standards for companies through its regulations and then hold companies accountable on behalf of the citizens we serve.

It is only with a continuing commitment to safety, backed by a strong compliance and enforcement framework, that the energy sector will be able to maintain its credibility with Canadians, a critical component to its continuing success.

Thank you once again for your invitation to be here today. My colleague, Dr. Colquhoun, and I would be very happy to answer any questions you may have.

The Chair: Thank you very much, Mr. Smyth.

I am going to start with a couple of questions. I do not usually do this, but in your presentation, you say Mr. Vokes had written a submission in May 2012. You do not think everything will be released until September. That is almost year and a half, and then you will take a certain amount of time to review that, so it is almost two years. I am thinking maybe another six months or something when you say you are going to take time to find out, or for the public to find out, what was wrong.

Do you think that is a little bit long to review some of the things that Mr. Vokes told us about what was going on?

I will tell you, frankly, that I think it is a little bit too long. It is out of people's minds. I hope that is not what we are trying to do.

Tell me that you could actually do that quicker, if there are some things seriously wrong, and why it takes — I am going to assume — two years.

Mr. Smyth: I will start by saying that as we conduct our audit, which includes activities in the field and in TransCanada's office, if our inspectors or auditors found an issue that they felt was of immediate concern — in other words, an immediate risk to public safety, worker safety or the protection of the environment — they have the necessary authority to deal with that non-compliance right then and there. We would not wait until we complete the audit to address it.

We launched the audit in October. By the time we complete our draft report and get that out, it will be the beginning of September. It will be about a year to complete the audit itself.

It is a comprehensive audit, looking at every aspect of TransCanada's integrity management program. When I compare what other government agencies are doing, the example I will use is with the Auditor General. They came into the National Energy Board two years ago and spent a year looking at one aspect of our emergency management program. However, what I would like to leave this committee with is that we are very thorough in our audit of the integrity management program. If there is any immediate issue or non-compliance that is a risk to safety or the environment, we will deal with it right then and there.

The Chair: If there is anything you feel is really damaging from the time you started the investigation, you folks will be dealing with those issues with other companies as you move forward?

Mr. Smyth: Correct. We do not wait until the draft or final audit report. If we find something during the process, we deal with it right then and there.

The Chair: I have one more question. On page 2, you have a number of points. I would have questions about all of them, but I am going to ask one. I will read it: ". . . determining if TransCanada's revised" — and I want to underline "revised" — "inspection process meets the requirements set out in the National Energy Board Onshore Pipeline Regulations 1999. Revised as of what period of time? Is that revised after Mr. Vokes started making complaints? What does revised mean? It is a strange word. It should not be in there, I do not think. It says something to me.

Iain Colquhoun, Chief Engineer, National Energy Board: I will take a shot at it.

Mr. Vokes' actions within the company resulted in an internal audit of TransCanada and the revision to the inspection process; the need for that revision was identified in their internal audit and through discussions with us.

In answer to your question, yes, it was after Mr. Vokes' actions.

The Chair: I will get that right then.

TransCanada recognized they were not doing something right that met the regulations after Mr. Vokes — if I understand what you are saying — made his complaint. TransCanada revised its processes and now you are reviewing the revised processes.

Mr. Colquhoun: That is correct. We reviewed the interpretation that TransCanada had used during our review of their processes and did not agree that it met with the intent or the words of the regulation. From that point, we ensured that they did revise their process, but they had already identified that through their internal audit.

The Chair: Would it be normal for the NEB to actually review TransCanada's processes to meet requirements set out on onshore pipelines in 1999? Would you ever review those? When would the last time have been that the NEB would have reviewed TransCanada's processes to meet the requirements of the pipeline regulations?

Mr. Colquhoun: Mr. Chairman, in answer to the first part of your question: Yes, we do view it. The opportunities that we take to review it would be through compliance activities such as audits, inspections and technical meetings that we have with the regulated companies from time to time, and on a periodic basis through the audits that Mr. Smyth referred to.

Senator Mitchell: I am interested in following up a bit on that. If you did not make these revisions or do this audit that ultimately resulted in revisions until you heard from Mr. Vokes, I guess the basic question is why would your regular audit procedures in relationship with this company not have revealed those and how do we know that in the absence of a Mr. Vokes in other companies you are not missing them there?

Mr. Colquhoun: Again, taking it from Mr. Smyth's opening statement, we cannot be everywhere all of us at the one time. We do really appreciate intelligence coming from many sources. We consider the integrity of pipelines, the safety to Canadians being a shared resource, a shared responsibility.

The way that we deal with it, though, senator, is that we use our risk-informed approach, which essentially is a prioritized spot check. In other words, our inspectors will use this approach to make sure that appropriate attention is paid to conditions that might result in an unsafe event.

As they are doing that, they broaden out and look for, shall we say, slightly lower risk situations as well. We would find it eventually through our process of inspections, audits and technical meetings.

Senator Mitchell: Mr. Vokes made the point that 1,200 fittings on a pipeline might not be up to standard. I think we had testimony here that indicated a lot of this kind of equipment could be imported from abroad, and while they are to meet certain standards, we do not govern the companies making these things. They could be halfway around the world. You cannot check every one that comes in. How do you get some confidence that fittings are up to standards or valves are up to standards? Do you do random spot checks, spot audits?

Mr. Colquhoun: The responsibility for the integrity of fittings and pipe rests squarely with the operator. The operator has a quality assurance program, and the oversight that the National Energy Board would supply would be to ensure that that program is in place and is adequate.

Senator Mitchell: Another company was recently reported to have not measured up to the standard of backup power on pumping station units of some kind, and there were apparently 117 of 125 that did not have backup power. The National Energy Board expressed its concern about this. If it were an infraction, how could it be that that could have sustained for as long as it did? Why would that have occurred?

Mr. Colquhoun: Going back to an earlier remark that I made — and Mr. Smyth, of course, is the business unit leader for operations, so he operates this process — the way that we deal with prioritizing our inspections and the things that we inspect, so not just the frequency but the actual elements that we inspect, is a risk-informed approach. It is a prioritized spot check, basically.

When we look at that particular case that you spoke about, the APUs — the auxiliary power unit requirement — it was a case of needing an auxiliary power unit to operate the station exactly at the time that something went wrong with the station and exactly at the time when the grid went down.

In the opinion of the company — and we were inclined to agree — that is a very remote possibility. Nonetheless, it is a non-compliance and action has to be taken. We took the action and gave the company a period of time to become compliant.

Senator Mitchell: On quite another line of questioning, I am very interested in the one-call initiative. We first learned of its importance when we met with TransCanada and they raised the point that progress is being made in Ontario. Is there a role that the National Energy Board could play in facilitating the development of a one-call structure across the country, with penalties for not one-calling?

Mr. Smyth: I believe there is a role. Right now, the National Energy Board is reworking its regulatory framework for the damage prevention aspect of the world that we regulate. In other words, when someone is working in and around a pipeline, what are the requirements?

Currently, we have the pipeline crossing regulations, part 1 and part 2. They have been in place for quite a while. They do not include any reference to a national one-call centre. They do make reference to the requirement for anyone who wishes to work around a pipeline to either call the company directly or, if there is a one-call centre locally, that they would call that one-call centre.

The National Energy Board is the regulatory champion with the Canadian Common Ground Alliance. We also are members of each of the regional Common Ground Alliances around Canada. Through that venue, we have been supportive of a national one-call and the Canadian Common Ground Alliance put forward an application to the CRTC a little over a year ago for joint use of the 811 number.

Unfortunately, that was turned down, but there are other strategies that can be employed, and right now they have rolled out a strategy called "click before you dig."

Certainly, the NEB does have a role and we are looking at that through our analysis of a regulatory framework for damage prevention.

Senator Lang: Mr. Chair, being a member of this committee for four years, I want to say that we have had the National Energy Board in front of us a number of occasions. I take the National Energy Board's testimony at face value, accept it as fact, and accept the credibility of the National Energy Board. When we get a situation like this, I have to say it really begs the question in respect to what is being told to us as a committee versus what is going on in the day-to-day operations of the various pipelines, and in the oil and gas industry. We are assuming that the National Energy Board is carrying out its mandate. I want to leave you with that observation.

I have three questions. You have indicated that, in view of Mr. Vokes' intervention, November of 2012, NEB inspectors and auditors began visiting field facilities. Have you found any discrepancies in respect to that audit that have to be dealt with immediately as opposed to waiting until, Senator Neufeld said, a year and a half from now?

Mr. Smyth: To date, we have not found any issues of non-compliance that would pose an immediate threat to public safety or the environment.

Senator Lang: Have you found situations or identified areas where there are long-term possibilities of non- compliance?

Mr. Smyth: As of now, I am not privy to the draft report. They are finalizing it right now. If something is of concern to the inspectors and auditors as they go out and conduct activities, they will come and report that directly to me.

As they finalize their draft report and I get an opportunity to review it, likely early next week, then we will have a better sense, but at this point, given that they have not brought anything to my attention, there is nothing of concern.

Senator Lang: In your remarks you said that due to reports from concerned individuals, such as Mr. Vokes, you have identified the need for a regulatory whistle-blower hotline. How many other concerns individuals have called you for the purposes of identifying problems in the pipelines?

Mr. Smyth: Since we put the phone number in place and activated the email, we have had five other individuals contact us.

Senator Lang: I want to go over to human resource policies. We witnessed the spill in Mexico, and one of the observations was that there was not an arm's-length relationship between the regulators and the companies on a day- to-day basis. In respect to the NEB and the employees versus the companies they are responsible for, is the relationship clearly outlined and at an arm's-length's situation so we do not experience the situation where there is not an arm's- length's relationship between the inspectors and the companies?

Mr. Smyth: We absolutely have policies in place, and I would reference the NEB code of conduct for its employees. All employees are expected to review and accept the code of conduct, and we send it out on annual basis. Certainly, we keep on top of that.

As the business lead of operations, and that is where all the engineers, inspectors, auditors and investigators reside within the board, between me and my direct reports to the directors, we ensure that all interactions with our regulated companies are appropriate.

Senator Seidman: When Mr. Vokes appeared before us on June 6, I asked him what steps the NEB could take to ensure better oversight. He said: "The first and most important thing . . . to making sure that the regulations and codes are carried out is inspectors." He also made the distinction between what he called a "safety violation" and a "code violation." He said code violations are not taken seriously compared to other priorities, such as construction schedule and cost. What role does the NEB play in managing inspectors and ensuring that the code violations are taken seriously?

Mr. Colquhoun: Coming back to our earlier remarks, we certainly agree with Mr. Vokes that there is a distinction between risk or safety and compliance. Both must be addressed, and both are addressed by the NEB. On a priority, of course, if there is a safety concern, that is dealt with right away. In the case of non-compliance, a judgment is applied to see what time frame is appropriate to best address the non-compliance.

Senator Seidman: What about the role the NEB plays in managing inspectors? That was one of the major issues he brought forward.

Mr. Smyth: We have a comprehensive learning and development plan in place for all of our inspectors. There is a requirement for certain education before they come in. Then, before they can be put forward to the board for consideration as an inspection officer, designated under a clause of the NEB Act as an "inspection officer," they have to complete certain training, including a certain number of field trips. It is a fairly comprehensive program that we have in place to ensure that we have well-trained inspectors who understand their role. We review it on an annual basis, through training, and then their actual designation is only valid for five years, and we would review them again at that point and put them forward if they meet all the requirements.

Senator Seidman: Are you involved in evaluating whether inspectors are doing their work correctly or ensuring that they are evaluated on a regular basis and that they are not allowed to continue if there are problems? How does that operate?

Mr. Smyth: Yes, we have a quality control process in place for all of our inspectors. They are mentored when they are learning, so as they go out and conduct activities on behalf of the board, we have senior staff that accompany them and review how they perform in the field as well as provide mentoring and guidance as they complete the documentation.

When they become a designated inspection officer under the NEB Act, and they complete their activities, we do have a quality control process in place, where, on a random basis, they are reviewed.

As far as inspectors who complete the training and are considered to be put forward to the board for designation, all of those recommendations come to me. I review it and ensure they have completed the requirements. I sign it off, and then it would go to the board for their consideration.

Senator Seidman: Is there some process for recall or expelling an inspector?

Mr. Smyth: Yes, when an inspector is given officer designation, we have a document they complete called an "officer declaration." It lays out clearly what the legal obligations and requirements are, and if they do not fulfill them or are found to be deficient, we could pull the designation.

Senator Seidman: Do all inspectors who work in the field have to complete this program?

Mr. Smyth: Everyone who is on our inspection track has to complete all of the training and is working toward inspection officer designation. If we have someone in training in the field, they will be with a designated inspection officer. We have operations inspectors; we also have specialists; and we have engineers. They all work toward becoming an inspection officer pursuant to the NEB Act.

Senator Ringuette: I assume that the pipeline builders and owners are relatively few in number and a close-knit community.

One of my first concerns is the issue of material standards. I assume that with respect to the material being purchased, there is some kind of agreement of bulk buying in order to save money. Are we looking at only the substandard material issue with TransCanada, or is it within the industry at large?

Another major concern is that Mr. Vokes indicated the low calibration of the pods. That is also an issue. I am also questioning how much subcontracting for construction and maintenance is involved. What are the responsibilities and delegated responsibilities to the subcontractors? You can audit TransCanada, but what about all the subcontractors? It is always the case that when you go further down the line there is a tendency to be less stringent.

You indicated that you had recently done a safety forum where five CEOs agreed they would strive for zero incidents. That is good, but I hope that all the engineers involved in the system were at that safety forum for them to know firsthand from you what additional safety measures you are looking at.

Mr. Colquhoun: Thank you very much, senator. I will answer the last question first because it is the one I can remember, and I will give Mr. Smyth some time to answer the other two.

That is an extremely good observation, one that is very near to my heart. It is all very well that CEOs have — I think the term during the safety forum was "flowery speeches," but that is perhaps a little insulting; the speeches certainly had sincerity.

It is all very well to hear this from the CEOs. We have to see it coming through all of the engineers and other technical specialists, as you mentioned. That is precisely the gap we look for. We work to a management system that can quickly be summarized in five points. One is management commitment, which is what the CEOs actually give us. Another one is planning, so a risk-based or risk-informed approach to planning, then implementation, then corrective actions, and finally to close the loop, the review by management again.

Where we look for, try to identify and encourage the closing of gaps is in that portion between the middle management and the person responsible. By way of analogy, in a team you can have an owner, a trainer and a coach, but you still need a captain on the ice, and that is where we look for the gap.

Senator Ringuette: In other words, the slate of engineers was not involved in the forum, or did I misunderstand you?

Mr. Colquhoun: I am sorry; yes, they were involved in the forum. I guess I read more into your question than was there. They were certainly there, yes.

Senator Ringuette: Okay.

Mr. Smyth: With respect to your question about substandard material, when a company makes application to the NEB to construct a pipeline or even for operation and maintenance work, they know that they have to meet the requirements set out in the NEB Act, its regulations and standards. The standard referenced within the Onshore Pipeline Regulations is CSA Z662. That standard lays out what the material requirements need to be, so when the companies make application, for all intents and purposes, they are swearing to the board that we will abide by the acts, the regulation and the governing standard.

Senator Ringuette: How do you review that? How do you ensure that the materials being purchased are safe? I can say to you, "I swear I will do this tomorrow," but following tomorrow. . .

Mr. Smyth: It is a role we have at the NEB. When a pipeline is being constructed, we get out there; we are in the field looking at activities in the field. We are also reviewing documentation. Then the last stage would be a company making application for leave to open, and there is certain documentation they need to submit to us again, which is a vetting and review point for us.

Senator Wallace: Mr. Smyth, we have asked you to appear before us again today because of the testimony we heard from Mr. Vokes last week. As you know, Mr. Vokes had very serious allegations to make about TransCanada, I would say as well about the NEB, condemnation of both. He has raised many specific technical issues, most of which people around this table would not be qualified to pass judgment on, and that is to a large extent why we have to rely upon the NEB, and we respect your opinion. I would like to know if the NEB has addressed all of the allegations raised by Mr. Vokes against the TransCanada pipeline.

Mr. Smyth: Yes, we have looked at all of them. We did a comprehensive review based on Mr. Vokes' written submission to us, and we went so far as to go back into some historical compliance activities that we completed with TransCanada to see if those issues were identified during those compliance activities.

We also modified the scope of some compliance activities we had on the books for last year, looking specifically for those types of issues. In one instance, we found that there was a problem with some well procedures. We addressed that with the company, but that was the only issue that we found through our field activities. Now we are digging deeper through the audit.

Essentially, yes, we looked at everything, and we continue to address and follow up.

Senator Wallace: I realize with each of the allegations there is much you could say on those, which we do not have time to get into today, but can you give us some assurance that the steps the NEB has taken and will continue to take will be adequate to address the concerns raised by Mr. Vokes in terms of ensuring the public of the safety of pipelines in this country?

Mr. Smyth: Absolutely. We are leaving no stone unturned. We take the allegations that Mr. Vokes made seriously. As soon as he provided his written submission to us and we were able to have it on the record, we followed up immediately, and there has been a great deal of due diligence on our part in ensuring that everything is followed up on and that, again, there is no immediate threat to public safety and the environment.

Senator Wallace: As you pointed out in your statement, Budget 2012 provided the NEB with an additional $13.5 million in respect of pipeline safety. Is that a significant amount of money? Is it having a significant impact on the quality of work of the NEB in ensuring the safety of pipelines in Canada?

Mr. Smyth: It is a significant amount of money for us. We were able to hire a number of new staff, engineers and inspectors. We could always bring more on. I would love to have even double the number I have right now so that we have even greater coverage.

The $13.5 million was significant. We were able to increase our inspections last year. As I say, we surpassed the target and completed the six comprehensive audits. We are on target to do that again this year.

Senator Wallace: We have been focusing on TransCanada pipeline because of the allegations made by Mr. Vokes, and as you said, you are expanding your audit process of TransCanada in terms of ensuring pipeline safety. As a result of that, are you also planning to expand or have you expanded your audit process in relation to other pipeline companies in this country?

Mr. Smyth: We are reworking our audit process right now to align with the new Onshore Pipeline Regulations. It is more comprehensive, and it will apply to all pipeline companies operating in this country.

You will note, if you have not already seen it on our website, this last Monday was an inspection report on the Enbridge control room. We are employing another tool there where we are directing the company to conduct a third party audit, and that third party would actually report to the NEB where we would set the scope, and we would be in receipt of the draft and the final report. There are a number of tools we can employ to ensure we have appropriate coverage.

Senator Wallace: Thank you for that.

Senator Unger: Gentlemen, my supplementary question referred to the audit of TransCanada as a result of Mr. Vokes' complaint. Would their audit have been as detailed as yours? I am hearing from you that probably it would not have been if Mr. Vokes had not come forward.

Mr. Colquhoun: I sat in on the audit. We added the components that we learned from Mr. Vokes to the audit, but it would have been every bit as detailed without that detail. All we wanted to do was to ensure that the things that had been raised were addressed in the audit.

Senator Unger: My next question concerns your ability to issue monetary penalties. This does not come into effect until July of this year. What is the amount of these penalties? Do you feel that this will be an effective remedy?

Mr. Smyth: I think it will be another good deterrent in our enforcement tool box. If I recall correctly, it is $100,000 per day for companies, per infraction, and $25,000 for an individual per infraction. If an individual were found to be in non-compliance, the maximum that could be levied is $25,000 per day, but if that non-compliance were to last for five days, it would be $25,000 times five days. That said, there are aggravating and mitigating circumstances that we would consider.

The last message I would like to leave is with respect to administrative monetary penalties. This is something the pipeline companies have been requesting for a number of years, and it is finally through the work of Parliament that we were able to get that authority. We are ready to launch in July and hit the ground running.

Senator Unger: In your talk, you commented that five concerned individuals have come forward to date — Mr. Vokes would make six. With respect to these people who have come forward with serious concerns, in your opinion and given the volume of pipeline work being done by the many companies in this area, is the number of complaints commensurate with the amount of pipeline in place? Should it be 100 complaints or another number? The companies strive for zero, but what is the balance here?

Mr. Smyth: I do not know if I have an answer for you because there is nothing I have to compare to. Even with the provinces, I am not sure if they have a whistle-blower hotline in place and, if they do, how many complaints they get. Five over the period of a year does not surprise me. Should there be more? Maybe. Should there be less? I do not know. I cannot answer.

Mr. Colquhoun: There were actually five in total, including Mr. Vokes. A number of those were clearly related to Mr. Vokes going public. We can also say that since we have had the hotline in place, we have had none. The indications would be that it would not be in the hundreds that we would expect.

Senator Unger: You had none prior?

Mr. Colquhoun: That is correct.

Senator Unger: My next question would have been: What is the historical background on this?

Mr. Colquhoun: I believe we had one previous to this batch of five that came along. They were not all related to the same company, nor related to Mr. Vokes, I should add. Previously, we only had to deal with one.

Senator Unger: The conclusion that I am drawing, and I hope the other members of the panel are as well, is that really, given the size and scope of this industry, the number of complaints or allegations is really insignificant. I hate to use that word, because every one of them is taken seriously. As long as the safety of Canadians is not being compromised, I see that as they are doing good work.

Mr. Colquhoun: I am sure we could concur with that, and no matter how few or many, we do take every one seriously.

Senator Patterson: Mr. Colquhoun, I would like to ask you about the profession of engineering and its relation to the NEB Act. Mr. Vokes stated, and I am not sure I understood his comment: "Professionals practising engineering is not mandated under the National Energy Board Act or regulation . . . ." He goes on to say: ". . . but it is professional engineers that have the knowledge, the duty of care and the will to drive forward technology and safe pipelines." He said: "I call upon the committee to ensure inclusion of engineering accountability into the act."

You have 35 qualified engineers. Mr. Vokes suggests they are powerless under the act to act as professionals. Could you comment on that, please?

Mr. Colquhoun: I will try. I read his words, and I guess I read them a little differently. I thought Mr. Vokes was talking about the engineers in the operating companies. In any event, I think we can answer the question generally. There are many actions that must be taken by engineers or technical specialists — they may be environmental specialists, for example. Therefore, although Mr. Vokes talks about engineers, there are certainly other technical specialists who could come under the same comment he made.

We do not mandate that has to be done, but we do mandate that safety and environmental protection must be observed. Where specific specialists are used within a company, then they must comply with the regulations governing those people. In the case of engineers in Alberta, they must comply with APEGA, for example. However, we do not regulate the engineering practice, as such. That is the purview of the APEGA, for example — the associations.

Senator Patterson: I think the suggestion was that the voluntary compliance model of the National Energy Board has moved compliance backwards.

Mr. Smyth: I would like to address that. It certainly has not moved compliance backwards; it is holding companies accountable. When you look at where the voluntary compliance tool fits within our tool box, if our inspectors are at site and they find an issue of non-compliance that cannot be corrected while there, they will be seeking assurance from the company that they will rectify the situation. The company provides this documentation to us, acknowledges the non-compliance and says, "This is what we will do to fix it, and these are the timelines." We follow up on that. It is like a corrective action plan. It is another tool for holding companies accountable.

Senator Patterson: This is about Mr. Vokes' testimony, which we felt should be answered. He said that the National Energy Board website itself shows ". . . serious violations occur repeatedly and no follow up action is taken."

Would we find this if we studied your website? Is that a correct analysis of the situation — that violations are occurring with no follow-up?

Mr. Smyth: I do not know how Mr. Vokes would reach that conclusion. On our website, the board has taken the initiative to post its compliance and enforcement actions. What you see on our website would be board orders where we found issues of non-compliance and where the board is taking enforcement action and directing companies to do certain things by a certain time.

There are also final reports. For instance, we are putting our final investigation reports up there, as well as our final audit reports.

I do not know if that would indicate that there is any kind of a gap or trend or tendency. It is just the board being transparent in what we are doing.

Senator Patterson: This is my final question. Mr. Vokes led us to doubt the effectiveness of pigs. He said that the owner determines the recording threshold; pigs are good at detecting external corrosion but not very good at finding defects in girth welds. Would you comment on that, please?

Mr. Colquhoun: Pigs, of course, refers to inline inspection by intelligent pigs. There are many specialized kinds of pigs, based on different technologies, and there are appropriate pigs for the inspection of girth welds.

Senator MacDonald: Mr. Vokes had a number of safety concerns regarding some specific violations, such as fittings, welds and things of that nature, but I have a more general concern I want to raise with you about TransCanada.

The existing TransCanada Pipeline was built in the middle of the 20th century. It is close to 60 years old, and the proposal on the table for us to consider now is to extend this pipeline to Atlantic Canada, to take it from Hardisty, Alberta to eastern Ontario and put an extension on it. How does steel wear over a 50- or 60-year period and what are the realities of adding a new pipeline with modern steel to the older pipeline? A 60-year-old pipeline of that nature was built for gas. Is it an appropriate conduit to use to move bitumen mixed with condensate?

Mr. Colquhoun: With respect to the first question, steel itself does not age. The coating on the steel does need to be inspected from time to time, and that may deteriorate and need to be replaced. As long as the pipeline is appropriately maintained, to all intents and purposes, it will last indefinitely.

Adding modern steel to it, yes, there is no problem with that. There are different compositions of steel, but these are well understood and the methods of joining different compositions of steel are also understood.

With respect to bitumen, to the best of our understanding and knowledge — and we have spent some time looking at this — there is no reason why a pipeline properly designed and maintained should not be able to carry diluted bitumen, which I assume is what you are referring to.

Senator MacDonald: I have one supplementary. You said it does not age, but I am curious, does it wear?

Mr. Colquhoun: Yes, senator. There is a specification made in the tariff for the product that goes through the pipe and as long as the product is maintained within that specification, there will be no general wear.

There could be parts of the pipe where changes of direction, for example, take place, and internal erosion can occur. This is well-known and these are areas that would be required to be particularly monitored to ensure that that wear does not get to a point where it presents a danger.

Senator MacDonald: Thank you.

Senator Massicotte: In response to your question earlier about having a 24-hour hotline, not one call, and there were no complaints in the previous years, one can conclude wow, this is very good. Oddly enough, I have a different response. We were bombarded in the last year or two about how much things have improved, how safe and good pipelines are and how they now have a safety culture. One definitely concludes it was not that way before, obviously.

Even so, in your correspondence about the new rights and powers you have, obviously things were not perfect, yet you received no complaints. That means there is something wrong with the procedure. There is something wrong where people are not encouraged. There have been major disasters, yet no complaints.

I think there is probably something wrong with your procedure; people are not encouraged or the corporate culture discourages it.

You made reference to it in your presentation. You are now looking to have companies basically encourage whistle- blowers without retaliation. Can you comment? My response is different than the others saying there is no problem. I think there is a huge problem with the process here.

Mr. Smyth: I will take a crack at that.

Over the last three or four years, all of a sudden pipelines in Canada are in the public eye more so than ever, as is the National Energy Board. It is probably a result of major projects that are being contemplated.

Suddenly, folks are starting to ask questions and wondering where they can go. It is my theory that perhaps it is why we have not heard much in the past, and why we are starting to hear a little bit more nowadays, because there is more activity.

However, just because we now have a regulatory requirement in place for a whistle-blower within the company for their policy, our internal policy has always been that if anyone has a concern and they approach the National Energy Board, we will always take it seriously and follow up. Regardless of whether it is a formal policy and a 24-hour hot line, we will always follow up.

Senator Massicotte: I appreciate that. However, if you look at the results, people were not taking advantage of it.

On October 30, you advised TransCanada Pipeline, further to your letter of October 11, that you will do a significant audit and you outline what your scope is going to be. Can you tell us a little bit about when the audit started, how many people were involved, how long it took or how many hours it took?

Mr. Smyth: This is looking only at the integrity management program. I think the audit team is comprised of about eight staff at the National Energy Board who conduct field activities and interviews at the head office.

I participated in the meeting where we launched the audit, and it was shortly after the October 30 letter where we went through the scope with TransCanada's staff. We have been working diligently on this since mid-November and we are finalizing all of the documentation right now leading up to a draft report.

Senator Massicotte: Six months for eight people. Is that full-time for six months for eight people?

Mr. Smyth: The lead auditor and his assistant are on it on a full-time basis. The others are as required, depending on the activity they have been assigned.

The Chair: Mr. Colquhoun and Mr. Smyth, thank you for being here today. You have provided us with good answers.

Welcome to the second half of our meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. We are continuing our study on the safe transportation of hydrocarbons in Canada. From TransCanada, I am pleased to welcome Dan King, Vice-President, Engineering and Asset Reliability, and Chief Engineer.

We last saw you in Calgary, Mr. King, so we look forward to your presentation and then we will have some questions for you, sir. The floor is yours.

Dan King, Vice-President, Engineering and Asset Reliability and Chief Engineer, TransCanada: Thank you very much. As Vice-President of Engineering, Asset Reliability and Chief Engineer for TransCanada, I am responsible for ensuring the safety and reliability of TransCanada's pipeline assets.

I have been with TransCanada for 30 years. During that time, I have participated in the design, construction, operation and maintenance of TransCanada's natural gas and oil facilities in Canada and overseas.

I lead a team of approximately 500 engineering and other professionals whose job it is to meet or exceed regulatory requirements in the design, construction and safe operation of TransCanada's pipeline assets. I hold a Bachelor of Science degree in electrical engineering from the University of Calgary. I am a member of the Association of Professional Engineers and Geoscientists of Alberta, the American Society of Mechanical Engineers and the Institute of Electrical and Electronics Engineers. I sit on the board of Common Ground Alliance, which is a U.S.-based non- profit organization that promotes the importance of safe excavation around utilities. TransCanada has been asked to appear before this committee to respond to the testimony given by Mr. Evan Vokes on June 6.

Although I am troubled by the claims made by Mr. Vokes, I am pleased that I can appear before the committee to provide additional facts regarding his remarks and by doing so demonstrate to you and Canadians that TransCanada takes safety and compliance very seriously.

As you will hear, TransCanada has a very different view of the pipeline industry than does Mr. Vokes.

In my remarks today, I will begin by addressing how TransCanada approaches safety and compliance and particularly quality control for pipeline projects. You will have heard some of this from Mr. Wishart and Mr. Chittick when they appeared in February.

Next, I will address Mr. Vokes' role at TransCanada, which is relevant as Mr. Vokes was employed in the area of quality control. His role may shed some light on the claims he made last week.

I will also address some of the key allegations made by Mr. Vokes, statements about the suitability of converting existing TransCanada pipeline from gas to oil service, and the accusation of a culture of non-compliance at TransCanada.

TransCanada views the examples Mr. Vokes provides in his testimony very differently. In fact, many of the examples Mr. Vokes provides as evidence of wrongdoing or poor quality control are examples of the quality control process working properly.

Mr. Vokes made many claims in his testimony. Given the time I have with you here today, I will not be able to address each claim, but I am prepared to answer questions at the end of my remarks.

To the extent that TransCanada has not specifically addressed an allegation made by Mr. Vokes in these remarks, it should not be viewed that TransCanada is in agreement with the allegation.

TransCanada builds safety and compliance into every aspect of our operations, starting with the design and continuing through construction, operation, and eventually abandonment of pipeline.

Apart from this being the right thing to do, there is no benefit to TransCanada, financial or otherwise, of cutting corners on safety or compliance.

TransCanada's success from a business perspective depends on building safe, reliable pipelines to service Canadians' energy needs on a long-term basis. TransCanada will not compromise on safety, period.

Contrary to Mr. Vokes' comments, TransCanada does not profit from cutting currently incurred safety-related expenses. From a business standpoint, we are paid tolls to safely move products on behalf of our customers. If our systems were not designed properly or did not work reliably, that impacts our bottom line. It makes good business sense to do things right from the beginning.

We deliver critical energy products that we all rely on every day and you, the National Energy Board, and the public expect us to do our jobs as safely as possible.

One of the primary tools for ensuring safety and compliance is the implementation of robust and rigorous quality management systems for pipeline design and construction, which include various checks and balances to ensure all pipelines are constructed in compliance with regulatory requirements, codes and internal company specifications.

Pipeline projects are complex undertakings and there are many factors that may lead to issues during the life cycle of a pipeline, but the quality management system operates to identify issues of non-conformances.

Non-conformances are situations where code or internal specifications are not met in the initial construction. Corrective actions are developed and implemented prior to pipelines being placed into service.

The quality management system is comprised of a series of processes that apply to engineering design, procurement and construction of pipelines. These processes include engineering design reviews, specifications for materials, welding, and non-destructive examination, the qualification of suppliers and services, inspection requirements and training for manufacturing, fabrication and construction, engineering reviews from audits of construction, and lessons learned and continuous improvement.

The quality, safety, and inspection standards that TransCanada adheres to during construction are among the best in the world. Prior to putting pipeline into service, non-destructive examination is carried out on all welds. Hydrostatic testing is conducted at pressure well in excess of designed operating pressures to prove the integrity of the pipeline. In- line inspection tools known as smart pigs are used to measure and test for any defects in the pipe. Any anomalies that do not meet acceptance criteria are cut out and replaced prior to operation.

Mr. Vokes' job was to work within this quality management system. Mr. Vokes was hired as an engineer in training in the materials engineering department in 2007 and received his professional engineering status in July of 2009.

When Mr. Vokes started work at TransCanada as an engineer in training, his job was to perform quality assurance and quality control related to welding. His responsibilities included work on the development of welding procedures and specifications and conducting audits of construction.

A year later, Mr. Vokes was given the opportunity to take on a similar role in the area of non-destructive examination.

In both the welding area and the non-destructive examination area, Mr. Vokes was responsible for identifying issues and addressing non-conforming work as part of the quality control process.

Where issues were found, he was responsible for finding an appropriate resolution to the immediate concern and instituting process improvements to prevent similar recurrences.

As we expected of Mr. Vokes, he identified various issues and concerns that were subsequently considered and addressed by TransCanada.

For project groups and management, unfortunately, when it came to resolution of these issues, Mr. Vokes often disagreed with colleagues and managers on appropriate solutions.

TransCanada's established quality control process differed from Mr. Vokes' understanding of his role within that process in two important ways. First, Mr. Vokes appeared to believe that finding non-conformances was a failure of the quality management system, when in reality these instances are evidence that the system was working as designed.

The widely accepted practice of quality management recognizes that actively checking for compliance, discovering issues and then remedying the issue in the short- and long-term is how quality is improved.

TransCanada strives to do things correctly. However, we do inspect our work. Where we find problems, we fix them and incorporate the learnings in our continuous improvement process.

Second, pipeline regulations engineering codes cannot cover every circumstance and issue encountered in the field of pipeline construction. Engineers play a critical role in interpreting and applying these requirements.

Engineering judgment and collaboration are essential in developing real world solutions encountered in pipeline construction. Interpretation means that different engineers will offer different opinions on code requirements. Mr. Vokes seemed to have a difficult time accepting any interpretation other than his own. This meant that it was difficult to find immediate solutions for issues and to institute long-term process improvements.

There is no doubt that Mr. Vokes was able to identify problem areas. In fact, that was what he was hired by TransCanada to do.

What you did not hear from Mr. Vokes was the resolution of the issues that he raised.

One example of this is Mr. Vokes' comments on the project that had a 100 per cent weld repair rate that he characterized as a serious code violation. What Mr. Vokes did not tell you was that the weld repair issue occurred for a short time at the beginning of a project. TransCanada rejected the weld and required the contractor to make all necessary repairs.

In fact, it was precisely because that particular contractor was having difficulty that TransCanada sent a senior technical specialist along with Mr. Vokes, who was an engineer in training at the time, to the job site to analyze the situation, determine the root causes and develop appropriate solutions.

In effect, the incident Mr. Vokes described as an example of code violation was not a code violation. It was actually an example of how the quality control process is supposed to work.

Through TransCanada's inspection testing process, the welding issues were found, the root cause was identified and the welds were repaired or replaced.

Although Mr. Vokes filed the complaint that he provided as part of his testimony with the National Energy Board in 2012, at no time did the issues raised by Mr. Vokes pose an immediate safety threat. The National Energy Board agreed that this was the case in their letter to us on October 11, 2012, as did Mr. Vokes when he first raised the issue internally within TransCanada.

Another troubling aspect to Mr. Vokes' comments on June 6 is that he went beyond his area of responsibility and qualifications. He has commented on issues on projects that he was neither directly involved in nor qualified for.

For instance, Mr. Vokes speculates that the conversion aspect of the proposed Energy East project is unsafe. However, to TransCanada's knowledge, he has no expertise or experience in pipe integrity or in-line inspection and was never involved in the conversion of a pipeline from gas to oil service while working at TransCanada.

TransCanada's view is that the conversion of pipelines from gas to oil service is an accepted and safe industry practice and has been recently conducted on TransCanada's Keystone project. As was described previously, TransCanada's quality control processes would be applied to any pipelines that were contemplated for conversion.

TransCanada will inspect the pipelines and repairs will be made as necessary.

Mr. Vokes' comments were particularly objectionable as they are not provided from a position of expertise and ignore the considerable process and technology that would be applied to the conversion of pipelines to ensure their safety.

Mr. Vokes claims that TransCanada has a culture of non-compliance. In fact, TransCanada has a structure that requires compliance and supports a culture of collaboration and integrity. As part of TransCanada's quality control process, TransCanada's employees are encouraged to engage in healthy, technical discussion and bring forward any concerns regarding compliance.

More broadly, at TransCanada, employees can also report any ethical or compliance issues anonymously through the ethics help line.

It is worth noting that the National Energy Board routinely audits and inspects TransCanada's operations and facilities. There have been four major pipeline audits of TransCanada's operation since 2002, and over 100 inspections of its pipelines and operations since 2010. This rigorous oversight facilitates the identification and correction of issues, if any.

With all of these inspections, there were no major findings related to unsafe practices.

In closing, TransCanada is proud of its safety record, and we will always strive to do better. We understand that the claims made by Mr. Vokes are worrying and we appreciate the opportunity to provide you with some of the facts, and again to demonstrate to you just how seriously we take safety in every part of our operation.

There are three messages I would leave with you today in closing. TransCanada does have a culture of safety and compliance. We also have a robust quality management system that effectively deals with the complex issues that arise throughout the life cycle of pipelines. Finally, continuous improvement of our quality, safety and compliance practices are built into our management systems.

Thank you. That concludes my opening remarks, and I am happy to answer any questions.

The Chair: Thank you, Mr. King.

I will start with one question, and it is a question I have of the NEB and their review of TransCanada's operations. They say in their letter — and you were here to hear it, but I will put it on the record again: ". . . determining if TransCanada's revised inspection processes meet the requirements set out in the Onshore Pipeline Regulations, 1999."

Another point they had was examining the revisions TransCanada made to its internal engineering guidance and whether the revisions met NEB requirements. Can you tell me when those revisions would have taken place? Were they after Mr. Vokes or before?

The word "revision" actually sends a message to me, and I would like you to explain that if you could, please.

Mr. King: As part of the quality management thing that I talked about for continuous improvement, our requirements around non-destructive examination have actually been revised numerous times, as we have learned things from projects.

The first revision would have been in 2001, after we received the first order from the National Energy Board around non-destructive examination on the West Path project. Subsequent to that — as we were doing national projects and as we looked for ways to ensure that the inspection was being done properly and effectively — we have made numerous revisions over the years.

It is a continual process of revision, so I cannot really answer to there was some specific point. There were revisions made before Mr. Vokes made his allegations, and there were revisions and progress between the time Mr. Vokes raised his concerns internally at his own level, with his own leadership, to the time that he raised those issues with the senior management of TransCanada.

The Chair: I understand you make revisions all the time. I am okay with you saying that.

The two examples that I read to you that the NEB is doing now with TransCanada — as they refer to the testimony from the National Energy Board — were those revisions made after Mr. Vokes actually made his complaints or prior to? That is the question I would like to know.

Mr. King: I guess the problem I am having with your question is that Mr. Vokes raised issues with his own leadership within the company, and action was taken at that point to revise our specifications. Mr. Vokes was not satisfied with the extent those revisions went to. He raised that with senior management and then ultimately with the National Energy Board.

I would not say that we have taken action. After the internal audit within TransCanada, at that point we did take further action to revise the specifications around non-destructive examination.

Senator Mitchell: People refer to "non-destructive inspections." That means you do not dig up the pipeline and check it out. Is that it?

Mr. King: "Non-destructive examination" means that we inspect the pipe through X-rays, radiography, or with ultrasonic or other techniques. It means we do not actually tear the piece of pipe apart.

Senator Mitchell: To follow up on the chair's question, it would be helpful if you could give us an example of a revision. You mentioned the non-destructive examination of West Path in answer to an earlier question, and something came out of that. What would be a specific example of a revision that you made in the normal course of things or as a result of the NEB interest?

Mr. King: I will try to give you a short answer, as it can be a long response. The Onshore Pipeline Regulations require that inspection needs to be done by somebody independent of the constructor or contractor. That came out in the 1999 version of the OPRs.

There are all sorts of different inspectors that we utilize during pipeline construction, specifically with regard to non- destructive examination. We were measuring independence by the fact that it was big companies that do non- destructive examination. They have the reputation to ensure that they are independent; there are a lot of ways to be independent. The National Energy Board clarified their interpretation that independence in terms of the OPRs meant that TransCanada needed to be paying the bill directly to them, rather than managing their independence through other ways.

Therefore, we modified our requirements at that time that the NDE contractor needed to be paid directly by TransCanada.

Senator Mitchell: I want to acknowledge your involvement in Common Ground Alliance, or the One Call, and we are working on that. We will be calling a former chair as a witness on that issue.

In the absence of enough time to do that, I would like to take you back to the fitting or the valve quality issue that Mr. Vokes had raised. The NEB made the point that it is incumbent on the company to do quality assurance because some or many of your products might come from jurisdictions we do not govern. Even if there are standards, how do we ensure they are met? What sort of quality assurance program would you have for a specific issue like pipeline fittings?

Mr. King: Our process starts well before we would be purchasing components from a supplier. We would visit the company in question and discuss with them our specifications — the specifications to meet CSA standards, and whatever additional requirements we would have. We talk to them about their quality control procedures; how they manage quality within their plant; how they test and inspect; and we approve all of that so they become a qualified provider.

During production, we normally have somebody in their manufacturing facility on sort of a routine spot-check basis to see how well they are doing. When we then receive the materials, the materials are tested as part of the normal process of building a pipeline, because once those components are installed, they are pressure tested to validate their integrity.

Senator Lang: I appreciate you being here today. I am concerned in respect to where we started about a year ago and where we are today. It is almost like we are sometimes being given testimony that people want us to hear as opposed to dealing with the real issues that face us.

I have a bit of a problem, Mr. Chair, in respect to the question of Mr. Vokes. His name keeps being raised in the course of this hearing. Just for the record, I was impressed with Mr. Vokes' credentials — the fact that he was a millwright; he had been a welder; and he went back to school, became an engineer and got his masters. I am concerned that maybe his credibility is being questioned, and I feel that it has got to go on the record here that different points of view are being expressed. I can see why you need the anonymous whistle-blower type of system so that we do not get into this situation. I just want to say that I find it troubling.

On another point, earlier this morning we were told that there would be an extensive targeted audit that includes all of TransCanada's NEB-regulated subsidiaries, starting in 2012. Mr. King, in the testimony you gave us today, you point out that there have been four major pipeline audits from 2002 to 2010. I would like to know for our information what the difference is between a targeted audit and the other audits that were done between 2002 and 2010.

Mr. King: The National Energy Board audits all sorts of aspects of our operations. The audit that was initiated in the fall is specifically targeted around our integrity management program versus broader operational lines.

Senator Lang: Perhaps I am missing something here. It seems to me that we are building a pipeline, which is a pipe and some welds and another pipe and some other welds. For the most part, an audit would probably, from a priority point of view, ensure that the welds meet the required standards of the code. Am I not correct? Am I missing something here?

Mr. King: I guess I would differentiate the activity you are talking about on specifically checking to see that TransCanada is properly doing all of the inspections as pipelines are constructed. It is more along the lines of the 100 number that I noticed, the inspections; that is where that activity is generally carried out. The audits are much broader. In the integrity management review, they are looking at our management systems, processes to record where we have issues, take corrective actions, improve things on a long-term basis, proper reporting and documentation. That is more along the line of what is included in an audit versus what you are referring to, which I think would be more along the lines of an inspection.

Senator Lang: On page 5 you state that at no time did the issues raised by Mr. Vokes pose an imminent safety threat. Did they pose safety threats, though perhaps not imminent?

Mr. King: At no point were the issues raised by Mr. Vokes a safety threat.

Senator Wallace: Mr. King, as you pointed out, Mr. Vokes received his engineering degree four years ago and had responsibilities within the welding area and non-destructive examination area within TransCanada. He was responsible for identifying issues, addressing non-conforming work and finding appropriate resolutions for any matters of concern he might find.

You then went on to say that when it came to the resolution of these issues, Mr. Vokes often disagreed with his colleagues on the appropriate resolution. This makes me wonder. Perhaps you could briefly describe the process that TransCanada follows for one of its engineers such as Mr. Vokes, who is responsible for an area, to confirm whether the concerns are valid or not. I suspect one person is not likely on their own to make decisions that could involve multi- million dollar projects. What is the process? Once he identifies an issue like that, how, if at all, would other engineers and qualified people within TransCanada voice their opinion on those issues?

Mr. King: As I mentioned in my opening statement, we encourage open dialogue and creative discussion. Mr. Vokes was a junior engineer, and we have a number of more senior engineers on staff who are experts in this area. The process would be for a junior engineer to discuss this with their more senior colleagues and work toward resolution. If they could not come up with a resolution, they would take that to their leader.

When someone challenges an issue, we always ask them to provide solid rationale for their reasoning and present that in a logical way. If they can do that, we certainly make the changes or adjustments.

Senator Wallace: Was that the process that would have applied to Mr. Vokes and the concerns he expressed that we are considering here today?

Mr. King: Yes, it is.

Senator Wallace: Other more senior engineers would have considered those very same issues and, as is often the case, there are differing opinions.

Mr. King: Yes, and we have a number of very technical, capable people on staff.

Senator Wallace: I am sure you do.

Mr. King, being from Atlantic Canada along with other people around this table, we have great interest in the potential of the west-east pipeline. You touched upon this in your presentation. Mr. Vokes had, I would say, very alarming things to say about the integrity of Lines 1 and 2, which would be part of the conversion —

Mr. King: To correct that, Line 1 and 2 are not part of the conversion that is proposed for Energy East.

Senator Wallace: They are not? All right.

Mr. King: Mr. Vokes is wrong in that assertion.

Senator Wallace: Thank you for clarifying that. That is exactly the assurance that I would like to have should we have concerns about the conversion of existing TransCanada lines to potentially be extended to take oil to Eastern Canada. Mr. Vokes was referring to Lines 1 and 2 and said those are the last pipelines on earth that should be converted to carry bitumen. So he is simply wrong; those lines are not part of the process.

Mr. King: I believe Mr. Vokes is wrong on two points. First, Lines 1 and 2 can be successfully converted to carry bitumen. We successfully did that with Line 1, but it is not relevant in this case because should we get commercial and regulatory approval to go with this, the process would be to convert Line 4 across the Prairies, which was built in the 1970s, and Line 3 in northern Ontario, which was built in the 1990s.

Senator Wallace: Mr. King, you made the statement that TransCanada encourages employees to report unethical or non-compliance issues anonymously through an ethics help line. I suspect the culture within the corporation is a team approach and it is difficult, as a team player, to go against the team you are on. It takes a lot of nerve to step out and be highly critical in a public way about a company. I want to get some sense that TransCanada's approach is to encourage its employees if they see issues that would affect the safety of pipelines and they are encouraged or required to bring those concerns forward to management or perhaps to bring them forward in a broader way than that. Can you explain to us how TransCanada deals with that?

Mr. King: We have a Code of Business Ethics which we make everybody go through every year, and we ask them to sign a declaration. However, it is very clear that we require people to come forward with things. To me, a performance issue or a problem is someone who does not come forward. To me, this is a serious issue and we work to make sure it is clear to people. If we take disciplinary action against someone, it is because they failed to come forward or covered something up, buried something.

Senator Wallace: Did that ethical standard exist prior to Mr. Vokes raising these issues, or is it in response to him?

Mr. King: It has existed as long as I can remember, having worked at TransCanada for 30 years.

Senator Ringuette: You mentioned senior engineers in your presentation and that you lead a team of 500. Out of the team of 500 engineers, how many would be senior and junior? I am assuming years of experience would also be a factor in the senior designation.

Mr. King: We have a pretty even mix of junior and senior engineers, which is what you need for a healthy organization. I would say that people at a senior level would typically have at least 12 years of experience.

Senator Ringuette: Would it not be impressive for your management to have a new, junior engineer of only two years identifying major issues, making the point that at least twice you had to revise your process because of his logic as a junior engineer in regard to all the other senior engineers you had in your company for so many years? Do you not see that as impressive?

Mr. King: I would say we have a number of junior engineers who are doing that same thing. Codes and the environment are continuously changing, so there is always a need for us to evolve and change things. That is why we hire these people, to work through the detail and come up with good improvements.

Senator Ringuette: In regard to quality control, construction and pipeline design, and maintenance, how many pipes and valve fittings would be purchased from offshore manufacturers, the manufacturers of the material you use? A major factor from my perspective is your maintenance process. How many of these three key issues are offshored by your company?

Mr. King: Design and maintenance work is all done in Canada or our U.S. operations.

Materials are certainly a more global commodity. These pipes and valves are globally traded commodities and we source those from whenever we can find them in the world. There is not enough large diameter pipe mill capacity within Canada to supply our needs, so we are forced to go to the other markets, to the U.S. or other places to find them.

Senator Ringuette: You are the sole certifier of the material that you buy. The National Energy Board does not certify the quality of these products?

Mr. King: The National Energy Board does not, but in the case of things like pressure vessels and other sorts of equipment, there are other certifying bodies that certify those components.

Senator Ringuette: Are those certifying bodies in Canada or offshore? When I say "offshore," I also include the U.S. because there are different standards in Canada in regard to process and material requirements from the U.S. When I say "offshore," and I question offshore to you, I also include the U.S. portion of the material, the design and maintenance process.

Mr. King: All of the materials used within Canada need to comply with the requirements of CSA and the onshore regulations or provincial regulations of provincially-regulated pipeline.

Senator Massicotte: I want to reiterate something you have said that is so obvious, but everyone should understand it. It is in your immense interest to find deficiencies and weaknesses before they occur because your financial bottom line is affected immensely. It is easier to repair something before the disaster occurs, as you know better than all of us, than have the consequences of a disaster.

Having said that, I presume that, as encouraged by the NEB, you must have a whistle-blower policy. You must encourage it immensely. Tell us about that. I would not mind knowing how many whistle-blowers you have had in that system in the last couple of years and what have been the consequences?

Mr. King: I am not privy to the exact numbers of people who have raised issues through the whistle-blower process. I am only made aware of the ones that affect my area of the company. That is in large part controlled by internal audit to help protect people's anonymity.

Within the last few years, I have only been made aware of two issues within my area where people have raised issues. We have investigated and resolved those to, as far as I understand, the person's satisfaction. I actually do not get to close the loop with the person because their anonymity would be damaged that way.

Senator Massicotte: That is two in what period of time; five years, ten years?

Mr. King: It is probably two in the past three years, and I am not aware of any prior to that.

Senator Massicotte: When did TransCanada put in that whistle-blower policy?

Mr. King: We have had this Code of Business Ethics policy and this COBE help line concept for at least 10 years.

Senator Massicotte: Any person in the public and any employee of a third party who works with you who sees something wrong would have the right to use it and would have access to it?

Mr. King: The COBE line is meant for employees and internal contracts.

Senator Massicotte: You have had two instances. Your responsibility is the engineering side. Anything to do with the pipes, the insulation of pipes and on-the-job work would be your responsibility and you would have been made aware of those calls?

Mr. King: If they were related to engineering, yes.

Senator Massicotte: Two out of three years, maybe five years, does not seem to be very much when you consider the risks and consequences. Am I wrong? Does your system work? I guess that is my question.

Mr. King: That number does not surprise me. We have lots of people who raise issues through the normal course of business. That is the culture we try to convey. The fact that there are two people who felt they could not bring something out without the need to be anonymous is what concerns me, because that tells me that the culture we are striving for has not gotten to those people yet.

Senator Unger: I think your position is difficult. It is as if we are asking you, "Have you stopped beating your wife yet?"

I have a question about the non-conformance you talked about. How often does this happen?

Mr. King: We find non-conformances on every project. The trick is finding them and then having enough layers of protection or checks and balances that nothing makes it through to pipeline operation, with the pressure test being that ultimate check at the end.

Non-conformances to process are the way you improve quality. On a small project, it could be a couple of small things that come up. On large-scale projects, there could be thousands of people working on a project so there will be more. It is hard to come up with a specific number.

Senator Unger: A pressure test is the final test to ensure that the welds have been properly done and the pipeline is safe.

Mr. King: Yes, it is a final pressure test. There are pressure tests of individual components along the way and then there is a final pressure test.

Senator Unger: I have a question about the pigs that are used. I understand there are different types and they check for different potential problems inside.

Mr. King: That is correct. There are a couple of different categories of pigs. There are ones that look for corrosion, damage, gouges, scrapes in the pipes. There are ones that look for cracks or thinning in the wall.

To clarify something that Mr. Vokes said, the limit for what the tool can detect is driven by physics. It is not driven by some artificial number that we put in place. We ask the providers of those tools to tell us everything they can see to the detection threshold of the tool.

Senator Unger: You also stated that in your view the conversion of pipelines from gas to oil is an accepted and safe industry practice and has recently been conducted on your Keystone project. For how long has this been an accepted and safe industry practice?

Mr. King: There have been lines that have been converted from gas to oil and oil to gas for certainly as long as my experience.

Senator Unger: Is that thirty years?

Mr. King: At least. I can think of at least one pipeline in Alberta that was converted prior to my joining TransCanada.

Senator Unger: Have there been any issues or problems?

Mr. King: I think there have been issues in the past, but as technologies have gotten better, we have so much more capability now to identify issues and resolve them before the conversion is completed.

Senator Seidman: You say that you are routinely audited and inspected by the National Energy Board. I would like to ask you specifically about the inspectors. Do you do your own inspections within your company? If so, who does them?

Mr. King: Inspectors for pipeline construction?

Senator Seidman: Right, for quality control. You are building and obviously ensuring things are all right. How do you do those inspections in-house?

Mr. King: We use a combination of our own in-house staff and third parties that we contract directly for doing inspections. We ensure that the third-party people are qualified to do the work and that they have adequate training and independence to do the work, but we do a combination.

Senator Seidman: What is the training for your in-house inspectors? Are they people in your material engineering department, or do you train them in some kind of a program?

Mr. King: We have a training program for the inspectors. Most of them are not engineers; most of them are tradespeople. For instance, welding inspectors are often former welders. We give them training very specifically about what our specifications and procedures require; what they should do should they find anything; how to work the process; and if he they do find issues that they cannot resolve, who to contact within the engineering staff who can provide them with additional expertise.

Senator Seidman: How do you deal with your third-party inspectors? Do you give them the same training program? Do you then verify that they are doing the inspection correctly?

Mr. King: We give them a very similar training program. Also, although they work for third parties, many of them come back to us on multiple projects, so we are familiar with a number of the people. We also audit their work to ensure they are doing a good job.

Senator Seidman: How do you do that audit?

Mr. King: We send out another of our core staff to double-check what they have done and ensure they are doing a good job.

Senator Seidman: Have you had any problems with the third-party inspectors?

Mr. King: Yes, we have found issues with inspectors. For example, maybe they did not learn everything they should have in the training, or perhaps they were not competent. We have taken actions in those cases.

Senator Seidman: Do you find code violations, for example, that you have to deal with? Have inspectors come up with code violations?

Mr. King: Is your question: Do the inspectors violate the code, or do the inspectors not catch code violations?

Senator Seidman: Do they catch code violations and report them to you on a regular basis?

Mr. King: Yes, they do. They are very good about shutting down a project and stopping work while we work with the contractor to correct the problem.

Senator Seidman: Do you feel fairly confident that code violations would be treated with enormous respect, regardless of whatever the costs are?

Mr. King: Absolutely. We will not put something into service if there is a question about how it was constructed. We really work to instill in these people that, as soon as they see something wrong, they need to stop work right away. It is a huge cost and a big problem for us for us to catch it later in an audit and have to go back and re-excavate a lot of pipe and examine a lot of work that was previously done. We try to tell them to ensure that does not happen.

Senator Seidman: You are really concerned with giving these inspectors the best possible training and the best possible caution that they must do due diligence, are you not?

Mr. King: Yes, absolutely.

Senator Patterson: I would like to zero-in on three specific comments Mr. Vokes made; that is what this hearing is about. He talked about what he called "self-inspected company welders." I think you have addressed that to a degree, but he said what they were doing was high risk from stories he heard from them, which is cause for public concern. He talked about the TransCanada pig launchers' story:

We could not see the welds for the scraper bars when our contractor was hiring his own inspection, and no one said a word about that for 10 years.

Could you comment on that, please?

Mr. King: I have read that piece of Mr. Vokes' testimony a few times, and I have been struggling and have asked a number of people what he is referring to there. It is a bit difficult. On fittings — on Tees in pipeline — there is a bar that is welded across the side branch such that the pig does not try to go down the side branch and rather continues straight through the pipe. This bar is tack-welded on the inside of the side branch and it is inspected.

Therefore, I do not understand what Mr. Vokes is concerned about. Even should those welds fail, they are not an integrity concern for the pipeline. They might damage the pig if the scraper bar has fallen off, but they do not compromise the safety of the pipeline. I am really struggling to understand the root of that particular question.

With respect to the maintenance welders one, Mr. Vokes was concerned that when TransCanada staff welders are doing work on maintenance work, the same clause in the Onshore Pipeline Act that requires independent inspection of third-party contractors should still apply. On maintenance welding, the TransCanada welder does the work and we have a third-party company hired by TransCanada to do the non-destructive examination. I am not quite sure who we could find as a third party — independent of us, again — to somehow contract for the non-destructive examinations. It does not make sense. I cannot figure that one out.

When we do maintenance welding, a TransCanada welder does it and we have an independent company do the work, but the independent company is contracted by us. It is impossible to contract through a third party.

Senator Patterson: Another point he made was about in-service welding and how it was qualified. He said it ". . . was qualified on low-strength materials, but the pipeline materials are high-strength low alloys." He also said: "It is legal under the code, but it makes no engineering sense at all, if it was a risk." He was sort of implying that the qualification of in-service welding was based on a low alloy. You read the testimony.

Mr. King: Yes, I did.

Senator Patterson: Could you comment?

Mr. King: TransCanada is a leader in the development of welding on in-service pipes. As Mr. Vokes noted, the welding procedures, which were developed for lower-strength seals, can be extrapolated to higher-strength seals, although Mr. Vokes does not believe that extrapolation should be done. Certainly, our senior welding engineers believe that is a reasonable thing to do. We have done sufficient testing on the higher-strength seals on in-service welding to demonstrate that fact.

Once again, I am unclear as to where Mr. Vokes is coming from with that comment.

Senator Patterson: He said, surprisingly, that he was doing one thing at TransCanada that was good for pipeline safety, and that was that "good project managers" were allowing him to use "automated ultrasonic testing on pipelines where we normally would use radiography." He goes on to say that:

Radiography has poor detection of the most serious pipeline defect cracks, whereas automated ultrasonic testing allows us to find all the cracks.

Could you comment on that? Are you using the better-value ultrasonic testing or, as he suggested, are you normally using the poorer-quality radiography approach?

Mr. King: Just to clarify, radiography is used worldwide and is acceptable in all codes. There are a number of requirements around different levels of radiography and how to use them.

Ultrasonic testing was developed as a way to inspect welds that have a very narrow gap. Those welds are primarily ones done by mechanized welding. Ultrasonic was developed sort of after mechanized welding to inspect those welds. TransCanada was the leader in the development of both mechanized welding and automated ultrasonic testing. We apply automated ultrasonic testing where there is a need to inspect the welds that are better inspected with that technology.

Many welds are perfectly "inspectable" using the proper grade of radiography.

Senator Patterson: It is not true that radiography gives poor detection of the most serious pipeline defect cracks?

Mr. King: No, it is not true. The different techniques give you different views of the weld, and you would use different techniques depending on what type of weld you have.

Senator MacDonald: Mr. King, I am one of those people who believe in pipelines. They are the safest and most efficient way to move petroleum, and we want one to come to the east coast. However, I have to ask you, in regard to the culture of safety and the maintenance of pipelines, we have all heard about the Keystone XL pipeline. However, the initial part of the Keystone pipeline that went to North Dakota between 2010 and 2011 had 12 breaks. That was a brand new line. There was one with a "six-story geyser" dumping 21,000 gallons of oil in North Dakota.

This is a brand new line that TransCanada is a part of. I just want you to square what you are saying with these facts. If this is a brand new line and the safety culture is strong enough, why are these things occurring in a brand new line?

Mr. King: The failures that occurred on the Keystone line did not happen on the pipeline. The failures happened within the pump stations, where there are a number of threaded fittings and lots of small tubing lines.

In the one case that caused the large failure, there was a pressure transmitter on a very thin little piece of pipe that was not properly supported. Understand that this is one of thousands of these things out there. This one was not properly supported, and it vibrated, broke off and caused this oil to —

Senator MacDonald: Who is responsible for the maintenance of that?

Mr. King: Our operations staff are, and once it was recognized that that there was a problem with these things, the pipeline was shut down. We worked with the Pipeline and Hazardous Materials Safety Administration in the U.S. to go through every one of the pump stations. We put in a corrective action plan with them to modify all of the stations to eliminate this potential failure mode, which we had not been aware of initially.

Those were all corrected. The pipeline was restarted a week later, and, like I say, we worked through that entire issue with the U.S. Department of Transportation, to their satisfaction.

The Chair: Thank you very much, Mr. King, for being here. We appreciate it, and we appreciate very much your expertise in what you do at TransCanada and in the questions that you answered. Have a good day.

(The committee adjourned.)