Natural Resources Committee on Feb. 9th, 2012

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Ah, so the notes are wrong here.

[Gaétan Caron]

It was still a good case study. It would have shown how long things can take.

What happened, honourable member, is that even before we started a process to deal with the application, we received literally 100-plus letters of comment on what we should do about our process. So we decided, as we always do, to be transparent about it. On December 5 we issued a draft scope of the proceeding, a draft environmental assessment, and we formally sought comments from parties on the process we should use.

A few days ago, on February 1.... I apologize. On December 5 we also said that we intended to have an oral hearing, which would also trigger the means for people who want to intervene to receive participant funding as part of the process, which was something that the board, when we decided, thought was a good thing.

More recently, a few days ago, on February 1 we issued our procedural update number 1, where we clarified that the scope remains that of a local project. There's no new right-of-way. The new amount of facilities are marginal. They're all within company property lines and the project is about that thing between Sarnia and the refinery just west of Toronto.

We've also clarified that, in keeping with improvements to the process, the oral phase of the hearing will be about final arguments, when people, at the end of the process, tell us what we should do. They try to persuade us to take a course of action. Everything else will be done in writing.

Our initial forecast of the hearing in the fall is being reassessed right now, and our intention is to do much better in the fall of 2012.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So can I then summarize? You're working to streamline everything, but you are trying to make sure you cover every base. That's what I'm hearing.

[Gaétan Caron]

You're right, because the legal standard is natural justice—be fair to all—but at the same time, not have justice delayed become justice denied. As your colleague said, it's a tough job, like yours, and we try to optimize for Canadians the various components of our decisions.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you for correcting our notes, because that does make it look a lot more efficient than August 2008.

Turning to Mr. Reid now, like many Canadians, I've been interested in the Mackenzie Valley pipeline for a long time. I actually worked up in Paulatuk for a while as a geophysicist, so I have some idea of the geography of the area. But with the change in the North American gas market, the world gas market, with tight gas, have you missed your window? Have you missed your opportunity for this to be a commercially viable project?

You talked about a financial agreement with the federal government. Can you do this project without subsidies? I know people define subsidies differently, and sometimes agreements and ways of rebating royalties or not having them may or may not be, depending on how people describe them.

Can this project work commercially if we get non-subsidy elements taken care of between your organization, the companies, and the federal government?

[Robert Reid]

First of all, at today's gas prices, Mackenzie is simply not economic—there's no question about that. Today's gas prices are simply not sustainable. They're barely covering operating costs, let alone the full cycle of development costs of natural gas.

We've obtained an independent study on gas price forecasts and North American gas supply and demand balances. Those studies show that with the combination of the decline in the conventional resources and the upswing in demand for natural gas—the environmentally preferred fossil fuel—by 2020 gas prices will be there to make a project like Mackenzie economic.

The fiscal arrangement that we're negotiating with the federal government is simply to reduce the cost of capital. The largest single component of the shipping toll is the cost of capital. Pipelines are capital-intensive. So if we can get a government guarantee to reduce our cost of capital, that makes our project very attractive to incremental shippers.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Trost. Your time is up.

Mr. Calkins, go ahead for up to five minutes, please.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you very much.

I was just a little bit concerned.… I'm going to ask you, Mr. Caron. It seems to me, when I learned of the application by Enbridge to reverse the flow of that pipeline, which has already been reversed once in the past, my understanding is…could you explain to me why that would even be a consideration for the public benefit? This is private infrastructure owned by a private company that's gone through a regulatory process. It's in the ground. Does CN come to some regulatory authority to turn its train around on its own track? Do trucking companies come to some regulatory authority to turn their trucks around on the highway? It doesn't make any sense to me at all what business it is for a regulatory agency or whatever the case might be. If it's a safety issue, fine.

Could you explain to me why simply reversing the flow of fluid through a pipeline would be a matter of public debate and public hearings?

[Gaétan Caron]

Honourable member, that's an excellent point.

If the application were only about reversing the flow, we'd have to find a way to have questions about it, but the fact is that Enbridge applied under section 58 of the National Energy Board Act because there are some facilities being proposed. It is the wish of Parliament that any facilities applied for be approved or denied by the National Energy Board, so we don't have discretion in that respect. The discretion we have is in the process we use and how long we take to look at it.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

So it's broader than simply turning the flow in the pipeline around.

[Gaétan Caron]

That's right. There are some valves and fittings, and they are all within company property lines. There's no new right of way, but the farmers and the landowners have expressed concern to us about this thing that they call “reversal”, which also has some hardware to be proposed. We have a duty in law and conscience to listen to them.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

That helps me a lot. I appreciate the explanation.

Mr. Reid, the question I have for you, sir, is that you said in your testimony that the nature of the agreement of the Mackenzie Valley pipeline would be beneficial for aboriginal people throughout the area there. Is that correct? Did I hear you correctly when you said that?

[Robert Reid]

Yes, that's correct.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

The question I have for you is about the nature of the agreements with the first nations, between the proprietors, and so on. Is it an equity position? Is it payment, like you would have for landowners for easements?

What's the nature of the funding model that would be putting money into the hands of aboriginal people? Does it put the money in the hands of bands, or does it actually put the money in the hands of aboriginal people on the ground?

[Robert Reid]

Thank you. That's an excellent question, and I'm going to break it in two.

We have a hat to wear as an owner, and then, quite separate from that, there were access and benefit agreements negotiated with each aboriginal group along the route. So with respect to our owner's hat, we have a one-third share in the pipeline, and the condition on which we have that share is that we have to pay for it. We have to finance that share on our own. There was no gift from our partners whatsoever.

We're paying our way, and in return for that we actually have two seats at the board table of the Mackenzie gas project and we participate in all of the committees—the environmental committee, regulatory committee, technical committee, commercial committee, and so on. In that way, we're able to actually influence how this project develops and moves forward. We have had a direct impact on a number of processes, where the desires at the community level have been brought to the board table and resolved successfully.

In terms of access, Imperial Oil is the project manager, and they negotiated access and benefit agreements with each aboriginal group down along the pipeline route. We, as an owner, were conflicted in those discussions, and did not take part in those discussions. They were successfully concluded with three out of the four groups, and the fourth group is very close.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you.

My last question is for you, Ms. Krause. I would like to know exactly what the difference is between the reporting mechanisms that you found in Canadian reporting through CRA and the tax reporting in the United States. Could you give us a little bit of detail on what the difference was that allowed you to do your investigation?

The other question I have for you is an opinion question. In your opinion, if it was found that large Canadian charitable foundations were seen to be heavily investing in charitable organizations, or transferring massive amounts of money from Canada into the United States to influence United States domestic policy, what do you think the reaction would be of the United States Congress?

[Vivian Krause]

To answer your first question, in what are called 990 tax returns of 501(c)(3) charitable foundations, they're required to report a couple of things. One is the grants that they make—the recipient, the stated purpose, the amount, and the date. If that information were publicly available from Canadian foundations then, for example, we'd know what Tides Canada has done with the $60 million that it got from American foundations.

Another important piece of information is who is being paid, in terms of the PR firms and other for-profit businesses that are funded. In the U.S., charitable foundations are required to report the five highest payees or contractors, and the amounts that they were paid. They're also required to report the names and the exact amount of the salary of the five highest-paid employees. So it's those three things—the grants and the details of the grants, the details of the highest-paid contractees, and the details of the highest-paid employees.

Perhaps I could answer your second question by telling you that in July of last year I was invited to New York by a small American think tank, the Atlas Economic Research Foundation. They convened a meeting with some of the top American journalists in the New York area who cover the energy sector—people from Forbes, Fortune, the Wall Street Journal, and others. They said to me, “What's going on? Don't you have any lawyers in Canada? Why aren't you suing these foundations?” They couldn't believe that we were just letting this happen. One guy told me that unless you get your lawyers down here, they're just going to be laughing all the way to the bank.

That was their reaction. As far as Congress, I don't know, but I can tell you that was the reaction of the journalists around the table when I met with them in New York.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Calkins and Ms. Krause.

Go ahead, Mr. Stewart, for five minutes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Hopefully I'll get through three questions, and they're all to experts here from the National Energy Board.

I was wondering if you could walk us through the expropriation process that may be followed when a general route is approved, yet there are local landowners who do not want to give up their land to have a pipeline laid through. If a landowner refuses to give up land, what happens? Could you just walk us through that?

[Gaétan Caron]

What I can do is go through the process that would happen if it ever occurred. It has not happened in recent memory. I cannot cite an example for you of when it happened.

Typically landowners, if they have participated in the certificate phase when it is a general route, will have perhaps expressed their concerns about the route or whether there will be a pipeline or not. Then if the board issues a certificate with the approval of Governor in Council, if there is a difference of view between the landowner and the company, we then administer a detailed route proceeding where the fine-tuning, if you like, of the route of the pipeline can be discussed. Again, an independent panel of board members can have the authority to change the location either within the landowner's property or around it, now affecting a different landowner. You can imagine the ripple effects this can have.

If the issue is in part or totally compensation for the disturbance on their land, there is a separate process administered by the Minister of Natural Resources Canada. We do not administer the part of the dispute, if you like, that is about money.

In the end, if all else fails, including compensation by the company to the landowner, there is an expropriation process that, honestly, I can't tell you much about today because I've never seen it in action. Either the route gets relocated, because people of goodwill find a solution, or there is enough compensation to move the topic to a different one between the landowner and the company.

I hope that's responsive, at least in part.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Yes, thanks. I might follow up in a second.

I was looking through your landowner guide that you publish on your website. I'm just trying to get a sense of a right-of-way. The landowner guide indicates that you require between 40 feet and 100 feet beside any pipeline that's laid. And then there is a safety zone that has to be 100 feet on either side of that, so it could be a swath of land of up to 300 feet.

Does the company have to own that entire 300 feet, or maybe you can...?

[Gaétan Caron]

I'll let Mr. Smyth supplement my answer. I'll be brief and I'll have him give you more specific numbers.

For the pipeline, you have the right to have the pipeline occupy the land of the landowner. You don't need to own it, but you must pay for the right of being on the right-of-way, and it is something over which the pipeline company can, subject to a land agreement, operate its vehicles for operation and maintenance or emergency response.

Beyond that, there is a safety zone in the act, administered by us and issued by Parliament, that is to keep people safe, and before anyone can do things on that safety zone, in some circumstances they have a duty to call the company—like a “call before you dig” kind of approach—with possibilities for exemptions for that, as long as there is a protocol approved by the board for that.

For the specific lengths, I'll let Mr. Smyth give you a bit more detail if you would like to hear it.

[Patrick Smyth, Business Unit Leader, Operations, National Energy Board]

As to the right-of-way itself, it's going to depend on the diameter of the pipe, the terrain it crosses through, and a number of other variables. The right-of-way itself could be from 4 metres to 12 metres, typically; and then from the edge of the right-of-way out on either side would be the safety zone of 30 metres. So for any activities that a landowner would intend to do within the safety zone and certainly in the right-of-way, there is a requirement to contact the company.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Could I just move that along? So we have an idea of the expropriation process and the width required for rights-of-way. For example, I have the Kinder Morgan Trans Mountain pipeline passing into my riding. I've traced it back, and it goes through 15 first nations reserves.

I wonder what the process is when it comes to reserves. I've looked at the pipeline, I've walked along a lot of it, and it comes very close to different houses, probably within this right-of-way, so there would probably have to be some kind of extension if they were going to dig the whole thing up and then lay another pipe next to it.

I just wonder how that works within first nations. There is a First Nations Land Management Act—two different ways that first nations administer their land—and I just wonder if you could fill us in a bit on how that works.

[Gaétan Caron]

Thank you.

For the original pipeline, it would have been something sorted out at the time the first pipeline was proposed and certified with the board, with all the protocol that was described to you of negotiating a location and compensation.

If there is a pipeline twinning proposed—we call this a pipeline loop—then the process starts over again. It is the responsibility of the company to engage early with aboriginal people and other Canadians to see whether there can be an arrangement between the people and the company in terms of the technical aspects and the compensation aspects.

NEB staff will be part of the process if we are invited to explain the rights of people, the rights they have under the legislation and Canadian laws. If a dispute occurs, then it's a panel of board members who will hear the case.