Watching the pipelines: How good are Alberta’s energy regulators?

Pipeline cleanup after a break northeast of Peace River, Alta., on May 4, 2011. Ian Jackson/Canadian Press

CALGARY AND TORONTO – The cracked pipe sleeve behind the second-biggest oil spill in Alberta’s history had been flagged as a hazard more than two decades earlier by the national regulator responsible for pipeline safety.

But this pipe fell under provincial jurisdiction, so the national regulator’s inspection edict didn’t apply at the time. And while the provincial regulator “assumed” prudent safety measures had been taken, it wrote in a post-incident report, it couldn’t be sure.

Alberta prides itself on a robust oversight system when it comes to the province’s economic lifeblood.

“The regulations that are in place are very stringent, the most stringent in North America and certainly around the world,” said Alberta’s Minister of Environment and Sustainable Resource Development, Diana McQueen. “We have a lot of development in this province, but we also have very tough regulations with regards to any spills that happen.”

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But is it enforcing them?

Wayne and Ila Johnston’s dog Tip sniffs around near a pumpjack on the couple’s farm near Sundre, Alberta. Leslie Young/Global News. Leslie Young / Global News

Falling through the cracks

Both the Energy Resources Conservation Board and its federal counterpart, the National Energy Board, rely on oil companies to let them know when something goes wrong. The regulators rarely follow up themselves, and usually only if they know of a series of problems.

Successive audits and reports have found that regulation isn’t keeping pace with industry growth, and that even when inspectors identify problems, they rarely follow up.

This has demonstrable consequences: On a spring evening in 2011, a leak on a Plains Midstream pipe in Northern Alberta released more than 28,000 barrels of sweet crude into rural muskeg before it was shut down – eight hours and several alarms after the leak was detected. According to the ERCB’s own investigation, it took nearly 14 hours after the first signs of a leak for Plains Midstream to report the incident to the energy regulator.

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Alberta’s environment ministry laid charges in connection with the spill last month, the same day Greenpeace released a scathing review of the province’s response ot the spill. “It just happened that the announcement was at the same time,” McQueen said.

Plains Midstream is charged with releasing a substance into the environment that causes or may cause a significant adverse effect, failing to take all reasonable measures to remedy the release as soon as they knew about it, and failing to remediate the substance in such a manner as to prevent an adverse effect or further adverse effect. Its first court appearance is June 17 in Peace River.

Plains Midstream declined to comment, citing the ongoing case. The company said in an email that it had “received and is now evaluating the charges arising out of this matter. We will be reviewing them with our counsel and the Crown, and will respond formally with our position in due course.”

That’s one of several cases with charges now pending involving incidents where safety stipulations slipped through the cracks, or where the government counted on company notification that never came.

And the board itself has expressed frustration with companies that follow its rules but don’t go further: it found Plains Midstream’s post spill communication “substandard and deficient” because it only covered what was required.

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Meanwhile, “operator error” is among the leading causes of crude oil spills in the province, second only to internal corrosion.

Honour-system enforcement

Aerial photos of the cleanup of a pipeline break northeast of Peace River, Alta. on May 4, 2011. Ian Jackson/Canadian Press. Ian Jackson/Canadian Press

“Having the regulations in place on paper is one thing; actually enforcing them and having them improve outcomes and prevent pipeline spills is another,” says policy analyst Nathan Lemphers of the Pembina Institute, an environmental advocacy group specializing in energy policy.

Alberta’s Energy Resources Conservation Board says it schedules inspections based in part on operator history, site sensitivity and “inherent risk.” According to the board, a pipeline in a populated area or a pipeline that had failed previously might be subject to more frequent inspections.

For its crude and multiphase pipelines, however, the majority of inspections are incident-driven.

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Critics argue pipeline regulation is based on too much of an honour system to do much good.

“We’re glad to see that Alberta Environment is enforcing their regulations,” Lemphers said in reference to the Plains charges. “Unfortunately, it was a little too late to prevent another pipeline from this company spilling into the Red Deer River last year.”

That spill dumped more than 3,000 barrels of crude oil into Jackson Creek, which then flowed into the Red Deer River north of Sundre, Alberta. An ERCB investigation into the incident is ongoing.

Read about oil spills’ impact on local residents

“Conditions are set, but then when you ask the question, ‘Well, who’s tracking all those conditions?’ it’s not always clear,” said Barry Robinson, a staff lawyer with environmental non-profit Ecojustice.

“That’s the difficulty: If they don’t have the manpower and they’re relying on self-reporting. … Somebody’s got to be doing the watching.”

Fines and punishment

The Energy Resources Conservation Board has the ability to levy small fines of a few hundred dollars for administrative infractions. But the biggest tool in its arsenal is its ability to shut down an operation at the company’s expense, as it did during the Rainbow Pipeline incident.It can also prevent a company from obtaining a license to build a new pipeline or drill a new well, effectively stymieing its business. Alberta Environment and Sustainable Resource Development can advise that the government prosecute a company for a violation. Fines for that can be substantial – up to $500,000 per day for a corporation, depending on the violation.The new Alberta Energy Regulator will also be able to fine companies up to $500,000 per day for violating the acts currently enforced by both agencies. A company could in theory face multiple fines for the same incident, if it happened to break several laws.

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The problem’s been noted before: In December of 2011, the federal environment commissioner slammed the National Energy Board for not adequately enforcing its own rules.

The audit found the board’s inspections were insufficiently documented and there wasn’t enough guidance as to how they were supposed to be conducted; even in cases where deficiencies were identified, 93 per cent of the time no one followed up.

In many cases no one checked to ensure companies had the emergency plans they were supposed to, the audit found; and when the board checked, inspectors often didn’t tell the company if there was something wrong with its plan.

In response, the board vowed to review its practices and make sure that timely follow-up actions are undertaken to address gaps and deficiencies.

But things still slip through the regulatory cracks: It emerged earlier this year that most of Enbridge’s pump stations weren’t in compliance with a safety requirement the board hadn’t checked for previously.

At the time, Enbridge said it would never knowingly break the rules – and that the board itself had signed off on their safety standards and hadn’t enforced this measure before.

Regulators falling behind a growing industry

A 2010 report from the Royal Society of Canada found that regulatory capacity on the part of both provincial and federal governments “does not appear to have kept pace with the rapid growth of the oilsands industry.” The report added that there needs to be better access to information so people can better assess the industry’s cumulative impact.

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The federal Energy Board’s budget increased significantly over several years, almost doubling between 2005 and 2012. But now it’s dropping: 2013 estimates indicate it’s sustaining $2-million in cuts this year.

Funding for Alberta’s Energy Resource and Conservation Board, on the other hand, has largely stagnated since 2009: revenues were $191.4 million in 2008-09, but dropped slightly in 2011-12 to $186.6 million.

For 2013-14, the budget will come entirely from an industry levy, and is estimated to be $154.4 million.

“Certainly, we don’t have people to go to every site and every activity on the ground. No regulator in the world can do that,” said Jim Ellis, incoming CEO of Alberta’s repurposed energy regulator and a former deputy minister in both energy and environment departments. “So what we run is a risk-based approach.”

And even though the board’s budget hasn’t kept pace with industry growth, “we have the resources we need now to properly regulate it. And that includes compliance, on the ground inspections, regulations. … They are capably handling the workload right now.

“The system is working,” he added.

A boom stretches out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012. Jeff McIntosh/Canadian Press. Jeff McIntosh/Canadian Press

But the provincial board has been conducting fewer field inspections annually – and finding more cases of “high-risk noncompliance.” Inspectors found 437 such instances in 2011, up from 263 the year before. That year, 41 out of a total 362 of the drilling operations it inspected were deemed “high-risk noncompliant” – the highest proportion since 2006.

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In the meantime, the province is changing the way it keeps an eye on the energy industry, merging duties previously shared by Environment and the ERCB into one entity – the Alberta Energy Regulator.

“Part of the problem we found when we looked at what we were doing was we were kind of not as linked as we should have been as regulators,” Ellis said. “By putting all of the aspects under one agency, it’s going to make the decision-making process that much better.”

That said, he hastens to add that “all of those regulators do things very well.”

And, he says, there’s no need for closer linkages between the National Energy Board and Alberta’s regulator.

Ellis said he doesn’t know whether the new body will get more money. There won’t be “a giant increase” in the number of inspectors. But “it’s not going to be less than you see right now.”

While the new regulator officially comes into being next month, the transfer of responsibilities from the Environment ministry will probably take until early 2014.

After that, Ellis said, “we’ll carry on with continuing improvement. And I fully expect there’ll be more regulatory changes.”

Even before the new body gets started, however, concerns have been raised over its independence after oil industry insider Gerry Protti, former EnCana Corp. executive and founding president of the Canadian Association of Petroleum Producers, was named chairman of the board.

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“Albertans have had longstanding concerns with the independence of the ERCB and ensuring that it’s not too heavily influenced by industry,” Lemphers said.

“And choosing a former head of the Oil Industry Association does not send a signal that the regulator will provide the independence that it needs.”

But the public needn’t worry, Ellis said: As chairman, Protti won’t have much power.

“As the CEO, I’m the ultimate decision-maker,” Ellis said. “The board, with the chairman, has no influence and no say in what those commissioners do and how they make their decisions.”

A spokesperson for the board said Protti was not available for an interview.

For their part, industry groups say they welcome stronger government regulations and enforcement.

“We should be held to account, visibly so, and have strong regulators that make sure that we’re doing what we need to do,” said Brenda Kenny, President and CEO of the Canadian Energy Pipeline Association.

“We’re looking for opportunities to improve our performance and it’s because the public expects that of us,” said David Pryce, Vice-President of Operations for the Canadian Association of Petroleum Producers. “Industry is judged on all the operators’ performance. And industry, in a broad sense, wants all of the operators to be improving.”

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Overlapping regulatory jurisdictions can be a headache for oil companies, as well.

“It definitely adds layers to building projects. And sometimes those regulations aren’t necessarily aligned in terms of what the outcomes should be,” says TransCanada spokesman Shawn Howard.

The pipeline giant has been waiting 67 months, Howard notes (not that anyone’s counting) for the U.S. State Department to make a decision on Keystone XL, which was supposed to connect Alberta’s oilsands with the Gulf of Mexico. In the face of virulent opposition on both sides of the border, vocal lobbying from Canadian politicians and mixed messages from the Obama administration, TransCanada’s a little antsy.

“It is a challenge, there’s no question.”

Watch: Energy Minister Ken Hughes on the new Alberta Energy Regulator

Read Part 3: Anatomy of an oil spill

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