How to Fix the National Energy Board, Canada’s ‘Captured Regulator’

The National Energy Board (NEB) is a “captured regulator” that has “lost touch with what it means to protect the public interest.”

That’s what Marc Eliesen — former head of BC Hydro, Ontario Hydro and Manitoba Hydro, and former deputy minister of energy in Ontario and Manitoba — told the NEB Modernization Expert Panel on Wednesday morning in Vancouver.

“The bottom line is that the board’s behaviour during the Trans Mountain review not only exposed the process as a farce, it exposed the board as a captured regulator,” he said to the five-member panel.

“Regulatory capture exists when a regulator ceases to be independent and objective.”

The Trans Mountain pipeline was reviewed with what many consider a heavily politicized NEB process, one that Trudeau had committed to changing prior to issuing a federal verdict on the project.

That process included what Eliesen describes as gutted environmental legislation, the removal of “essential features of a quasi-judicial inquiry” including the cross-examination of evidence and the limiting of participation of intervenors in such a way it “predetermined the outcome in favour of the pipeline proponent.”

Eugene Kung, staff counsel at West Coast Environmental Law, said in an interview with DeSmog Canada that the hearings for the project were the worst he’s seen in almost 10 years of practising regulatory law.

But that doesn’t seem to be an accident. Eliesen — who withdrew as an intervenor from the NEB review of the Trans Mountain project in 2014 due to the “fraudulent process” — argues the problems go far deeper than just the Trans Mountain review, predominantly linked to the “revolving door” between industry and the board.

“This ‘modernization’ is some spinmaster’s term,” he said. “It’s about public trust and the fact the NEB has lost this trust to the Canadian public.”

Move of NEB Head Office to Calgary Arguably Compromised Independence

In 1991, the NEB’s head office was moved to Calgary, and legislation was changed to require all permanent members to reside in Calgary.

It’s a decision that Eliesen says was completely unexpected and ultimately a political move by former Prime Minister Brian Mulroney; most other regulatory agencies are located in Ottawa to prevent being influenced by the industry in which they’re supposed to regulate (including finance regulators, even though Toronto is often considered Canada’s finance city).

If it was indeed politically driven, the plan seems to have worked.

More than two-thirds of the staff didn’t move to Calgary, and their positions were subsequently filled by former employees of the oil and gas sector. This has resulted in what some call a “revolving door” between the two; as Eliesen pointed out in his presentation, some former NEB chairpersons have been inducted into the Canadian Petroleum Hall of Fame.

“I’m not suggesting any nefarious activities,” he says. “It’s just that you adopt the headspace and the attitude of the energy industry of Alberta. When you have the legislation changed as well to ensure that all the permanent members reside in Calgary, then you have a major, major bias.”

It’s something he argues got worse under former prime minister Stephen Harper, who took full advantage of it in his final months (appointing many former industry veterans to key positions with the board, including Steven Kelley, who previously worked as a consultant for Kinder Morgan on the Trans Mountain project).

Even one of the five members of the NEB Modernization Expert Panel previously served as president of the Canadian Energy Pipeline Association. That same person, Brenda Kenny, signed a 2011 letter to key cabinet ministers petitioning for regulatory overhaul.

“She is in a real conflict of interest,” Eliesen says. “She’s the last person to be on a panel trying to evaluate how to bring back to the public trust to the National Energy Board.”

How to Fix the National Energy Board, Canada's Captured Regulator https://t.co/mHjDbb2iRj #cdnpoli #EnergyEast #TransMountain @james_m_wilt pic.twitter.com/8So7hzWUQ1

— DeSmog Canada (@DeSmogCanada) February 10, 2017

Many Structural Changes Required to Fully ‘Modernize’ the NEB

Kung, who also presented to the expert panel on Wednesday, expressed concerns about the relationship between the NEB and industry. He says there are many structural ways that such capture can be fixed.

Currently, the NEB receives a majority of its funding from industry, something Kung suggests should be addressed.

Its “very important role” in data collection and forecasting (such as the exhaustive “Canada’s Energy Futures” reports) don’t currently consider climate commitments such as the Paris Agreement, with the latest NEB report imagining a “business-as-usual” world that features an increase of four to six degrees Celsius in average global temperatures. That’s another thing that Kung says needs to change in the modernization.

Patrick DeRochie — climate and energy program manager at Environmental Defence — agrees, arguing that the NEB needs to better align climate and energy policy: “It’s not there right now. With this energy transformation we’re seeing for renewables right now, it’s not adequate. We need to bring that into the 21st century.”

(Conversely, Eliesen disagrees and suggests the NEB be solely a quasi-judicial agency and the energy information and advisory mandate be removed).

A key concern for Kung is also about NEB personnel. He acknowledges the board possesses technical expertise and that it’s tricky to find that kind of knowledge in people who haven’t worked in the industry at some point.

“But the way you can separate it structurally is making their role slightly different so they’re not making a decision, for example, about national or public interest,” he says. “Because that’s an impossible decision to make by a captured regulator.”

Proposed Solutions Include Replacing Board Members, Relocating Head Office

Eliesen proposed two major solutions to the review panel.

First, remove all current board members and replace them with people that reflect a broad range of background and expertise, not just the oil and gas industry. And secondly, relocate the NEB’s head office back to Ottawa.

These two decisions would create a firewall of sorts between industry and the board.

In addition, he suggested that environmental assessments be undertaken outside of the NEB, enforcement of pipeline safety be increased, and proponents be required by the NEB to provide alternative routes for pipelines.

Vancouver was only the third stop of 10 for the expert panel. The final “engagement session” in Montreal will conclude on March 29.  The panel is required to submit a report and recommendations to the Minister of Natural Resources around May 15.*

It’s a timeline that DeRochie suggests has made the process “really rushed,” noting that some of the 12 discussion papers weren’t even posted on the NEB Modernization Panel website by the time the first engagement sessions started in Saskatoon. However, DeRochie presented at the engagement session in Toronto on Feb. 1, and said that he went in “kind of cynical” but emerged feeling like they “really did seem like they wanted to engage us and fix this regulator.”

“It’s either get this right or face a bunch of political and legal challenges to every single energy project moving forward,” he says. “I think all stakeholders — industry, government, indigenous communities and ENGOs — want to avoid that.”

* Update: Feb 9, 2017. This article originally stated the panel report was due March 31, as stated on the National Energy Board's website. However, the date has been updated to May 15, as stated in the National Energy Board's terms of reference for the review panel.

Images: Natural Resources Minister Jim Carr. Photo: Canada 2020 via Flickr (CC BY-NC-ND 2.0)