In this article in The Tyee, Andrew Nikiforuk levels some very serious allegations with respect to the National Energy Board, suggesting that the Board has been captured (see * below for definition) by industry, that it cannot be objective because it is industry-financed, and that it does not appropriately balance the interests of energy companies with those of rural Canadians.
If you are going to level an accusation that the country’s most powerful regulatory body has been captured by industry, you would likely want to have the backup of experts in legal process, perhaps a regulatory economist (I might be biased on this one), and certainly you should be armed with a long list of citations to previous Board decisions which demonstrate your case. In this article, Nikiforuk’s primary source is Dave Core, director of federally regulated projects for the Canadian Association of Energy and Pipeline Landowner Associations (CAEPLA), described on the CAEPLA website as, “…one of Canada’s foremost and leading landowner advocates.” In other words, he works on behalf of those people who are most negatively affected by energy infrastructure – those with pipelines literally in their backyards. With that kind of backup, Mr. Nikiforuk is bringing a knife to a gunfight.
Nikiforuk’s argument that the NEB has been captured is supported with a quote from a 2000 report (which is not online) on the NEB’s effectiveness by Purvin & Gertz saying that, “there is a disturbing perception that the National Energy Board has in some sense been ‘captured’ by the western based producer and pipeline industries.” The perception of capture does not, in and of itself, imply capture, and I am sure if that report had any more damning evidence, it would have been cited. Further, as you will see below, Nikiforuk is not afraid to take a quote out of context.
Mr. Nikiforuk’s argues that the Board cannot be unbiased because, “Canadian taxpayers no longer even pay the Board’s bills,” which leads him to question whether the NEB can, “…regulate pipelines in the pubic interest when it is 90 per cent funded by private industry?”
The NEB is a cost-recovery organization by design. If you want to look at all of their audited financial statements, they are online, or you can read their Cost Recovery FAQ. The NEB collects and spends approximately $60 million annually on regulatory hearings, salaries, etc. and also have recently added a participant funding program to allow stakeholders who previously would have been without the means to take part in hearings to do so. Nikiforuk wonders whether an industry-funded Board can make truly independent decisions – well, independence is hard to prove in the abstract, so I hope the Board will challenge Mr Nikiforuk to provide proof of his accusations or retract this article. What I can point out is that, in many hearings, some of those who fund the NEB through levies will actually be on opposite sides of the hearing table. Unlike the world Mr. Nikiforuk perceives, where it’s the ENGOs and Canadians against industry, it is often industry-vs-industry in NEB and other regulatory hearings. For example, this case (and a related US case) pitted Imperial Oil and Suncor against Enbridge. Further, in the Northern Gateway case, Kinder Morgan has an alternate project proposal, and actually challenged the NEB to delay the hearing until Enbridge could demonstrate commercial demand. Not exactly the cozy little cluster of Calgary office tower dwellers that Mr. Nikiforuk would have you imagine.
Mr Nikiforuk’s call for NEB reform is based on a quote attributed to this Senate report stating that, “many Canadians felt the national energy regulatory system was broken, and that rural Canadians ‘bear a disproportionate share of the costs’ for big energy projects.” Well, that’s not exactly what that report says. I think it’s worth looking at the quotes from the Senate Report in context (I apologize for the length). The first part of the quote used by Nikiforuk is from p.43 of the report, and here is the whole section with his quote in bold:
“However, many witnesses felt that the current regulatory process was broken and not prepared to handle the new generation of challenges affecting the energy sector.
Part of the problem is that the policy jurisdiction over environmental assessments is shared between provincial and federal governments. Many witnesses felt that this resulted in unnecessary duplication of assessments adding to project cost, creating uncertainties and causing long delays.
Some witnesses welcomed the recent federal initiatives to streamline the regulatory process such as the creation of a Major Projects Management Office (MPMO), an exception list for routine public infrastructure projects and the increased authority given to the Canadian Environment Assessment Agency to streamline its decision making process and the transfer of responsibility for environment assessments to the National Energy Board and the Canadian Nuclear Safety Commission for projects falling under their respective areas of expertise.
However, the recent explosion of the Deepwater Horizon, an offshore oil rig operating in the Gulf of Mexico which left 11 workers dead and is releasing crude oil uncontrollably has brought renewed attention to regulatory/inspection safeguards and emergency response preparedness of Canada’s current and future offshore oil and gas facilities.
The goal should be to provide smarter regulation that can process energy project proposals in a timely fashion without compromising any aspect of the environment or health and safety of employees or the public.“
In other words, there is not a single piece of the quote that suggests that the system is broken because it favours industry…the report suggests that the system is broken because it’s too time consuming, contains too much regulatory duplication, and argued that we need smarter regulation to prepare for growth in the energy sector. To co-opt this quote to suggest that the Senate committee thinks the NEB has been captured and needs to be reformed is irresponsible at best.
The second part of Mr. Nikiforuk’s quote, again in bold (which comes on page 42 in the report, so he reversed the order) is drawn from a previous section which reads as follows:
“A balance must be struck between private costs and the public good. While it is important to create an environment that attracts private investment and risk, and to ensure that Canadians are secure in their energy needs, it must be emphasized that local residents often bear a disproportionate share of the costs, including a possible reduction in income, property value or land use. Also, there may be real or perceived health and safety risks associated with living near energy facilities.
There is no easy way around this issue because energy projects must be built.”
Again, if you read that quote in context, the Senate doesn’t come close to saying what Mr. Nikiforuk wants you to believe they do, although I don’t find it surprising that he omitted the last line of the Senate report from his article.
If you are going to go after the country’s most important regulatory body, you better have a stronger case than a couple of quotes taken out of context, a landowner advocate, and semantics about the use of the word ‘partner’.
Since I started with a movie quote, I’ll end with one. Mr. Nikiforuk, “you’re going to need a bigger boat.”
* Wondering what capture theory is? George Hoberg correctly pointed out to me that capture theory was developed by political scientist Marver Bernstein in his 1955 book Regulating Business by Independent Commission. The idea was first introduced in economics by Nobel Prize winning economist George Stigler in his 1971 seminal article, “The Theory of Economic Regulation” (my apologies for the paywall). The paper has been cited in the academic literature about 6000 times. The theory holds that if, by whatever means, firms or other interest groups are able to capture the regulator, they will be able to sway the regulator to act in a biased manner in the decisions it makes. So, if a regulator is captured by industry, you would expect more development and expect regulated firms to earn higher rates of return then they otherwise would, and vice-versa if the regulator is captured by anti-development special-interest.