Interview: Challenges Won’t Deter CEPA From Its Mission

Canadian producers and pipeline operators continue to face serious business challenges in terms of regulatory uncertainty, anti-fossil fuel environmentalists, geographical divisiveness that pits producing vs. non-producing provinces and a Liberal-controlled federal government that is ambivalent, at best, toward an industry that provides thousands of well-paying jobs and contributes mightily to government coffers.

Amid this difficult business climate is the Canadian Energy Pipeline Association (CEPA), which represents the interests of the nation’s oil and gas transmission pipelines serving Canada and the U.S.  Led by its energetic president and CEO, Chris Bloomer, CEPA and the industry are not ready to throw in the towel, not today, not tomorrow, maybe not ever. Why? Credit their unbending faith in the products they make every effort to deliver in a safe, efficient manner.

Some recent CEPA activities:

• Created an impressive array of well-designed educational tutorials that explain how the pipeline industry operates;
• Engaged Ernst & Young for a study on regulatory competitiveness;
• Established Integrity First, a top-priority program to ensure pipeline safety; and
• Closely monitored Bill C-69 and tried, albeit unsuccessfully, to recommend amendments to make the new regulatory regimen more palatable to the industry.

That they failed was probably a forgone conclusion though it won’t stop CEPA from closely monitoring the effects of the new law when it takes effect in 2020 and seek modifications if and when possible. That possibility may come after this fall’s national election.

C-69 also makes a good starting point for this Hart Energy interview with Bloomer, a veteran of over 30 years in the domestic and international energy business. Prior to being appointed resident and CEO of CEPA in 2015, he spent three years as CEO and director at Connacher Oil and Gas Ltd. Before that, he was an executive with Petrobank Energy and Resources for 10 years. He began his career at Shell Canada where he ultimately was Director, Liquids Business.

The Challenges Of Bill C-69
“We’ve spent a significant amount of time this year working with the federal government on Bill C-69, which changes Canada’s review process for major infrastructure projects including pipelines,” Bloomer said. “We’ve been involved in extensive consultations over the last three years, including participation in consultation panels, submissions, testimony to Senate and House committees and other communications, in the hope of getting the bill to a place that would be workable for industry.

“Unfortunately, the bill passed a final vote in the Senate without critical amendments needed to provide clarity and decrease risks for investors and project proponents. We will continue to work with the federal government on the regulations associated with this legislation, which will lay out how the new review process will be put into practice,” he continued.  

Members hoped that Bill C-69 would help clarify the complex regulatory climate which has stifled infrastructure growth for years.

“A lack of clarity around Canada’s regulatory processes has created an environment of uncertainty in the industry, which is of grave concern to our members. Under Bill C-69, our members have stated that it is unlikely that any new major pipeline project will be proposed, due to high financial risks associated with lengthy, costly project reviews, particularly the numerous opportunities to suspend, extend and set longer timelines.

“These are important projects, which inject billions of dollars into Canada’s economy—money that would help pay for critical social services and the transition to a lower-carbon energy future,” he continued. “We currently do not have clarity or confidence in the timelines for impact assessments and project reviews for major new pipeline projects.”

Safety, Environmental Protection
Even with the attention required by Bill C-69, CEPA’s top priorities remain safety and environmental protection.

“Our member companies work together year-round through Integrity First to continuously improve in the areas of safety, the environment and socio-economic contributions. This work is ongoing in the goal to reach zero incidents,” Bloomer said.
 
“Integrity First is a systematic approach to improve performance for the entire pipeline industry in three key areas—safety, environment and socio-economics—by taking advantage of new technologies, ideas and innovations. CEPA members share their knowledge and innovations, joining forces to drive industry-wide improvements.”

Since 2014, Integrity First has been focused on five key priorities:

1. Emergency management
2. Control room management
3. Pipeline integrity
4. Damage prevention
5. Water protection

Each priority undergoes a six-stage cycle that employs a systematic approach to enabling collaboration among member companies for the ultimate benefit of the entire industry. Members identify opportunities to improve, implement change, review results and repeat through the following:

1. Integrity First priority identification: Priorities are identified through research and feedback gathered from the public and industry.
2. Guidance document design and development: Subject matter experts from member companies outline criteria for overall industry improvement. The criterion advances through maturity levels for a specific priority area.
3. Self-assessment: Member companies use the guidance document to assess their systems, processes and practices within this priority area.
4. Third-party verification: Conducted to increase trust, credibility, consistency of the company and industry.
5. Action planning for continual improvement: Consolidated self-assessment results are analyzed for each priority to identify potential areas of improvement and to share leading practices among members. Action plans are developed to improve performance. CEPA facilitates the execution of action plans including the sharing of leading practices.
6. Reporting: Members, through CEPA Integrity First, will regularly report on their performance and activities in this area to increase the accountability and transparency of the industry with the Canadian public”.

Regulatory: Level Playing Field  
Another important area CEPA has tried to address is improving industry competitiveness as lack of access to markets continues to hinder business opportunities. For answers, CEPA commissioned a study by Ernst & Young on regulatory competitiveness.

What it boils down to is the need to reduce regulatory layering between jurisdictions, Bloomer said. “A major takeaway was that only one major transmission pipeline application has been put forward in Canada since 2016, compared to a total of 14 in the U.S. over the same period.”

The analysis found that over the past several years an increase in volume, complexity and duplication of regulations imposed upon the pipeline industry, in addition to other factors, has negatively affected the competitiveness of the sector. This is demonstrated by evidence of steadily increasing regulatory timelines, a significant drop in new pipeline applications and shifting of capital from Canada to the US.

Based on EY’s analysis, CEPA has proposed the following recommendations for consideration by governments:
 
1. Regulatory certainty has been decreasing: A primary objective of changes to the regulatory landscape should be to increase stability and transparency in the regulatory process, including process predictability. Legislation and regulation pertaining to regulatory processes should be stable and reflect the long-term nature of transmission pipeline approval, construction and operation.

While it is a best practice to periodically review legislation and regulations, reviews should not be done too frequently, should be transparent and predictable to all stakeholders when undertaken. Governments should focus these reviews on predictability of process and should ensure wholesale changes to effective regulatory systems are avoided. Legislation and regulations supporting infrastructure development should not be subject to the whims of election cycles and should withstand changes in governments.

2. Regulatory overlap exists to a certain extent: Federal and provincial governments should develop and agree upon a common regulatory strategy that is committed to eliminating unharmonized regulations, establishing equivalency agreements and inspiring a high level of confidence for affected parties, including the public, to discourage unnecessary complexity, duplication and inefficiency.

3. Regulatory transparency and clarity is an issue: Regulations must have a clear path to compliance. This requires clear policy guidance on regulatory intent and the avoidance of regulatory overlap (where multiple regulations affect the same activity but with different intended or unintended outcomes). Regulations should be complementary rather than overlapping or, in the extreme case, competitive. A holistic approach is needed so regulations are not developed in isolation.
 
Timelines for implementing new regulations must ensure new processes, information requirements and guidance are clearly understood by all stakeholders.

4. Predictability of process and outcomes has been decreasing: Regulatory processes must be predictable, transparent and based on science and facts. To promote continued investment in pipeline infrastructure in Canada, governments must provide the utmost confidence that the outcomes of a regulatory process are not subject to political interference. This becomes especially important for long, complex and costly regulatory reviews.

5. Canada has a mix of prescriptive and outcome-based regulation. Regulations should be outcome-based to ensure the maximum degree of flexibility for compliance. Unnecessarily prescriptive regulations should be avoided as they often lead to inefficient and sometimes ineffective requirements. Further, outcome-based regulations encourage both cost-effective and innovative compliance approaches that can embrace new science and technologies.

6. Timelines in Canada are not always consistent or predictable and have been trending upwards: Regulatory processes should include reasonable and enforceable timelines. The total time required to undertake regulatory reviews in Canada is undermining competitiveness. As such, governments and regulators must ensure regulatory reviews reflect practical and realistic timelines that include consideration of commercial requirements and competitiveness.

7. Regulation is impacting costs, and there is not a high degree of cost certainty. Tax advantages that Canada once had no longer exist: Federal and provincial governments must consider impacts on business competitiveness, regulatory efficiency and effectiveness, and economic growth when developing and amending new and current regulations to ensure the regulatory burden on industry does not undermine the ability to remain competitive. As mentioned in the federal government’s fall 2018 economic outlook, government must commit and take actionable measures to make it easier for businesses to grow by modernizing federal regulations and encouraging regulators to consider economic competitiveness when designing and implementing regulations."

Conclusion
Overall, impacts on the competitiveness of the pipeline industry as well as the overall Canadian economy should be a foundational piece of all new and existing legislation and regulations. The current flood of new regulations that must be complied with at the federal, provincial and other levels (or that is currently in the planning/consultation phase) is overwhelming. Due to this reality, a full analysis of the cumulative impacts of new and planned regulations is needed. Any such analysis must include consideration of the comparative regulatory burden of other international jurisdictions that are competing for limited capital investment.

Canada’s pipeline industry isn’t disappearing anytime soon. Much will be determined after the fall election. Stay tuned.