The Benefits, Challenges and Future of U.S.-Canada Energy Interconnectedness

Speech

Speech to the Midwest Canada Relations Committee: The Benefits, Challenges and Future of U.S.-Canada Energy Interconnectedness
By Lyne Mercier
Bismarck, North Dakota
Sunday, 12 July 2015

Introduction:

Good afternoon. My name is Lyne Mercier, Vice-Chair of the National Energy Board, Canada’s federal energy regulator. I am very pleased to travel from Calgary, Alberta to be with you today to speak about the Benefits, Challenges and Future of U.S.-Canada Interconnectedness.
I have been with the Board for about 7 years now and have had the opportunity to work with the NEB regulating pipelines, energy development and trade in the Canadian public interest.

1) Canada’s Energy Regulation:

Energy in Canada is regulated based on jurisdiction, according to Canada’s Constitution with the powers divided between the federal and provincial governments.
The main principles of Canada’s energy policy are:
- A market orientation: the decision to submit an application to build a pipeline is a business decision made by commercial participants based on market demand for transportation capacity.
- Respect for jurisdictional authority and the role of the provinces:
  Provinces are owners of resources and thus control development. Pipelines that are intra-provincial are regulated by each individual provincial regulator.

The NEB:

The main responsibilities of the NEB are established in the National Energy Board Act. Our role in Canada’s energy development is the regulation of the construction and operation of international and interprovincial pipelines, international power lines and designated interprovincial power lines; to authorize pipeline tolls & tariffs; and to authorize energy exports (oil, gas, natural gas liquids and electricity) and imports (of gas).
The NEB believes the public interest is inclusive of all Canadians and refers to a balance of economic, environmental and social considerations that change as society’s values and preferences change over time.
In terms comparable to the U.S., the NEB mandate for onshore activities combines responsibilities of the Federal Energy Regulatory Commission (FERC), with many of the responsibilities of the U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Energy Information Administration (EIA).
In Canada, the Department of Natural Resources outlines the NEB’s mandate and sets the policy within which the NEB operates. The NEB is a good example of a single-window regulator.

2) Opportunities and Challenges for U.S.-Canada Energy Regulators

i) Challenge: Increased Public Scrutiny in North America

The single biggest change in the North American regulatory landscape is the unprecedented public interest on energy issues. From the description of energy regulation in Canada, it is clear that energy regulation is a difficult landscape to navigate with several different regulatory bodies both domestically and internationally with different mandates and responsibilities.
The Canadian public increasingly expects robust oversight of regulated pipelines and companies, and needs assurances that all regulators are committed to this task. It is not enough for the NEB to be an expert regulator – we must also be understood and trusted by the public in order for our activities and decisions to be seen as legitimate and credible.
These challenges cannot be confined to one country, one region, or one industry. Public attitudes spread across borders. We truly are in this together.

ii) Opportunity to Engage the Public

At the NEB, we are taking steps to inform Canadians about our processes. I have been travelling a great deal this spring with the NEB Chair/CEO (Peter Watson), talking to our stakeholders across Canada, meeting with municipal leaders, first responders, and environmental groups and so on.
One thing I have learned from them is that the NEB regulatory processes aren’t obvious to everyone.
A common misconception was that the NEB was responsible for regulating climate change, which is not within our jurisdiction. The NEB manages environmental issues, as well as safety and security, over the lifecycle of an approved project but does not set policy. The latter is done by the Federal Government in Canada.
Another misconception is that we approve infrastructure for development and our role stops there – but we actually oversee the construction and operation of the infrastructure for the entire operating lifecycle.
We have taken action to engage with the Canadian public in a meaningful way. One method is disseminating energy information that is easily understood, straightforward and uses plain language.

Some of the energy information products the NEB produces include long term analyses of oil and gas exports, and Market Snapshots, which are frequent but brief, updates illustrating emerging trends in various segments of the energy market. These products are all available on our website, www.neb-one.gc.ca, which I encourage you to visit.
The benefits of information products like these include increased transparency of Canadian energy markets and improved Canadian energy literacy; both are of growing importance.

Readability of our energy information products increases understanding and awareness between the public and the regulator, increases transparency and builds trust in our decisions and recommendations.

iii) Opportunity for Energy Information Harmony:

The NEB’s energy information program is in many ways similar to the function of the U.S. Energy Information Administration (EIA).

Since last year, the NEB has had quarterly conference calls with the EIA to share the latest updates on data initiatives or information product releases.
A good example of data issues that we’ve worked on with the EIA is crude by rail statistics. Crude oil volumes transported by rail spiked in recent years and we wanted to verify the accuracy of our statistics. In fact, you can often see crude tank cars travelling through Downtown Calgary from my office window. We have been working with the EIA to understand the differences in the export number that we receive from shippers, and the import numbers they have.
Another area of energy information collaboration is through the Canada/U.S./Mexico trilateral between federal energy departments. We work with NRCan in our participation.
The four areas of focus relate to improving data and consistency across the countries and making informed regulatory decisions that are consistent across jurisdictions, and include:
- validating export/import data,
- sharing geospatial information,
- comparing project energy flows, and
- understanding differences in energy definitions.

iv) Challenge: Market Applications for Energy Infrastructure

One of the most significant changes in energy development has been the shale revolution in the U.S. and Canada due to innovation in technologies like hydraulic fracturing and horizontal drilling.
- The Bakken formation, which runs underneath Montana, North Dakota, Saskatchewan and Manitoba, and the Cardium play in Alberta are examples of major oilfields that have benefitted from these technological advancements.
Canada’s energy infrastructure flows predominantly North-South for all commodities and is highly integrated with the U.S.
To highlight this interconnectedness, I’d like to present a few noteworthy stats:
- Almost 100% of Canada’s crude oil is exported to the U.S.
- Canada is the largest source of crude oil to the U.S.
- The Midwest is a major portal for Canadian oil to the U.S. market: in the first quarter of 2015, approximately 64% of Canada’s entire international crude oil exports went to the U.S. Midwestern region. This is a 79% increase in volume exported to the Midwestern region compared to the first quarter of 2010.
There are major oil pipeline projects currently at various stages of regulatory review at the NEB. Together, if approved, these projects could add millions of barrels per day of new take-away capacity, and nearly double the estimated amount per day of existing export capacity.
An economically efficient pipeline transportation system effectively responds to changing market conditions and applications for increased pipeline capacity will be sought by pipeline companies so they may capture new energy markets for the increase in supply.

3) The Benefits of Regulatory Cooperation

As the North American market continues to become more integrated, regulators in the U.S. and Canada should strive for effective and timely regulation that allows markets to achieve optimal outcomes while keeping environmental, economic and social goals in balance.
In addition, continued cooperation between regulators allows cross-jurisdictional energy transportation projects to be better coordinated in the application process and approved international projects to be regulated on both sides of the border in a more comprehensive, coordinated and coherent manner.
FERC MOU:
An example of this is the MOU between the NEB and the FERC.
- The agreement recognizes that the two agencies oversee interconnecting facilities or activities, and assists both parties to coordinate their responsibilities.
- It is another step in the NEB’s commitment to regulatory excellence and the development of regulatory strategies that protect the health and safety of Canadians and the environment, while contributing to economic efficiency.
NERC MOU:
Another example of continued integration through standardization across regions is the North American Electric Reliability Corporation (NERC). NERC develops and enforces standards to ensure the reliability of the bulk power system in North America.
- In addition, the NERC furthers this goal by assessing long term system adequacy, evaluating market participants for emergency preparedness and training industry personnel.
- By developing a set of standards that are consistent across electricity jurisdictions, market participants can more easily integrate electric systems across regions, to further reliability and prevent interruptions to power service.

Conclusion

It is important that these links demonstrate consistency and transparency so that companies and people on both sides of the border know what to expect when they utilize these links. The more standardized the transmission across North American borders, the more trading partners can benefit from each other's comparative advantage.
Canada’s national energy policy is solid but not static. It must remain flexible to ensure an economically competitive and innovative energy sector that sustainably delivers a secure, reliable and safe supply of energy for North America.

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The Benefits, Challenges and Future of U.S.-Canada Energy Interconnectedness

Speech

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