Thank you. I appreciate the opportunity to present to the committee this morning. It's a pleasure to appear before you and provide some of the views of the Canadian Energy Pipeline Association.
My name is Brenda Kenny. I am president and CEO of that organization.
I'll begin with some context. CEPA represents companies that transport over 97% of all the oil and natural gas that we use in Canada and export. Our membership currently operates over 100,000 kilometres of pipelines in North America.
Pipelines are the only feasible and by far the safest and most environmentally sound way of transporting large volumes of natural gas over land. I'm here today to speak with you with regard to the 2011 budget.
This is a sector that has long recognized the need for eventual retirement of these major Canadian systems. For more than a decade CEPA has actively advanced technical work to support planning for environmentally responsible retirement. In addition, we have identified appropriate funding mechanisms to ensure sufficient funds are available in the long-term many, many decades out while also ensuring the costs are well managed and fairly distributed between current and future energy shippers and consumers.
In May 2009 the National Energy Board passed down a decision that will require all pipeline companies to begin to estimate and set aside funds that will eventually be required to retire their infrastructure in an environmentally sound way. It is to satisfy this regulatory imperative that operators must submit their estimates in May of this coming year, 2011, and then begin setting aside funds in May 2014.
So the NEB requirement necessitates a decision now to allow our members certainty in estimating costs associated with the collection of those funds. We are seeking in the budget of 2011 a resolution associated with the mechanism through which the management of these funds would occur.
Our proposal is one that respects the environment, land owners, our customers, and ultimately energy consumers that rely on Canadian energy pipelines every day.
The National Energy Board, in its decision, found that the pipeline operators should approach the Department of Finance to ensure that a mechanism for setting aside funds is in place. It is following this direction that I am here before you today.
Our proposal is as follows, and is outlined in our previous submission to you.
Currently, the Income Tax Act provides a mechanism for the retirement of mining assets in the form of something called qualified environmental trusts, QET. We recommend modifications to the existing structure in two ways. First, that the word “pipelines” be included so that QETs could be used for pipeline assets. Second, we're asking the federal government to modify the investment restrictions on those trusts. I'll explain why.
I must emphasize that pipeline operators do not intend to invest in funds that are susceptible to unnecessary risk. These are long-term undertakings,and the investment objectives, in order of priority, are actually quite similar to pension funds: first, security of principal; second, liquidity; and finally, return.
All investments will be of an investment grade counterparty in liquid securities that have open markets and numerous participants. Acceptable investments would include government securities, bankers' acceptances, deposit notes, and the like.
The NEB decision indicates that there will be regulatory oversight of these funds, including regular audits. This is all with an eye to ensuring that there are sufficient funds to enable responsible retirement at the end of the pipeline's useful life. This further regulatory oversight, which does not currently exist on mining, would provide further safeguards on these investments over time and reinforce the value to Canadians in modifying those investment restrictions on these trusts.
By accepting CEPA's recommendations, the Government of Canada would not only be facilitating the National Energy Board but would also ensure that the funds are available in the future so that corporations and not governments will solely be responsible for the financial burden associated with reclamation.
Together we can ensure that the eventual abandonment of pipeline systems takes place in a way that respects the environment, landowners, and Canadian consumers. An inclusion of these two changes in the Income Tax Act in the budget of 2011 will provide certainty for all stakeholders.
We must begin submitting estimates for retirement to the NEB in May of this coming year, 2011. As such, this request is urgent.
One final point I'd like to make is about funding the federal government's commitment to regulatory efficiency and effectiveness. In the budget of 2007 the federal government committed $150 million to these goals and it led to the creation of the major project management office. This funding is about to come to an end, but funding is still necessary to advancing a modern, effective, and efficient regulatory regime, especially for Canada's energy sector. I would urge the government to maintain this commitment to ensure that regulatory capacity and the appropriate resources are in place within government to continue the valuable work the MPMO and other agencies provide.
Thank you again for the opportunity to speak.