EUB Compliance Assurance Initiative

1. EUB Compliance Assurance Initiative The Regulatory Craft in Nova Scotia November 20-21 2007 Hal Knox

2. Nothing is more destructive of respect for the government and the law of the land than passing laws which can not be enforced. Albert Einstein

3. Overview • EUB • Alberta Context • EUB Compliance Assurance Initiative • Compliance “Tools and Incentives” • Directive 019 • Opportunities • Summary

4. EUB Mission • Mission • To ensure that the discovery, development and delivery of Alberta’s energy resources and utility services take place in a manner that is fair, responsible and in the public interest.

5. Regulatory Framework Government sets policy LEGISLATION Other Government departments Regulators administer policy Public REGULATIONS Industry develops projects

6. Primary Energy Industry Regulatory Interfaces Notice of applicationsInformationDirectly affectedPublic Hearings Alberta Energy and Utilities Board Alberta Energy Public Energy policy Mineral rights RoyaltyPre-drilling exploration Facilities/scheme approvalsInformation collection and disseminationCompliance/inspectionsCorrelative rightsUtility rates Alberta Environment Environmental standards and approvals National Energy Board Environmental impact assessmentPollution control Energy Industry Gas Export Federally-regulated pipelines Alberta Sustainable Resource Development Surface access and rights-of-way on privately-owned land Alberta Human Resources and Employment Occupational health and safety Surface Rights Board

7. Alberta Facts • Area………... 661 190 km2 • Population... 3.4 million (Jan. 2007) • GDP*……... $ 152.7 billion (2006) • Exports…….$ 90.1 billion (2006) • Major cities.. Edmonton (capital) Calgary Note: Alberta total GDP $152.7 billion (2006), energy sector approx 28% Source – Highlights of the Alberta Economy, February 2007 Alberta Economic Development

8. Energy Facilities in Alberta – 2006 • Producing Oil and Gas Wells…..159 546* • Pipelines…………………………… 392 232 km • Gas processing ................. 573 sweet gas plants 244 sour gas plants** • Oil sands………………… 38 commercial plants (31 in situ, 7 surface mines) 113 primary recovery projects (in situ) 10 experimental projects • Oil refineries…………. 5 facilities (75 500 m3 per day capacity) • Licensees………………………………..1850 Note: * Producing wells – 8 469 bitumen, 35 218 conventional oil, 109 335 gas, 6 524 CBM ** Including sulphur recovery

9. Energy Facilities in Alberta – 2006 • Batteries* and Compressor Stations 21 616 oil 12 243 gas • Coal mines 9 open/strip pits 2 small open pits 1 underground 1 not producing • Electric generating plants 7 coal fired 5840 MW 35 gas fired 4412 MW 14 hydro 869 MW wind (10) and other 621 MW total production: 11 742 MW * sweet and sour multi and single well, sweet and sour satellites, gas batteries, and compressor stations

10. Annual Alberta Energy Production - 2006 • Conventional oil………31.5 million m3 • Bitumen in situ…………………28.7 million m3surface-mineable…….44.1 million m3 • Natural gas……………138.3 billion m3 * • Natural gas liquids……38 million m3 • Coal……………………2.5 million tonnes * Including 1.2 billion m3 CBM Note: billion = 109

11. 2006 EUB Applications • Wells…………………… .25 399 • Production facilities…… ..3 540 • Pipelines………………. ..16 410 • Oil sands • In situ…………… 242 • Mineable………… 3 • Coal…………………….. 11 • Reservoir development.. 5 164 • Environmental review… 451 • Utilities………………… 779

13. EUB Compliance Vision • "Energy and utility industries that understand, respects and meet or exceed regulations and standards of fairness, most often on their own initiative."

14. Compliance Assurance Initiative (CAI) – What is it? • CAI – 5 year initiative • A new approach to compliance assurance • Increase focus on prevention through information and education • Simplified enforcement

15. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Risk Assessment Surveillance and Audits Performance Reporting Communications and Education Implement Clear Process and Regulations Implementation of Systems and Tools

16. Compliance Assurance InitiativeBenefits • Increased and improved EUB services for stakeholders • Internal Stakeholders internalize CA principles, processes and tools, and achieve increasing regulatory effectiveness • Stakeholders recognize the principles of Compliance Assurance and their respective responsibilities

17. Compliance Assurance InitiativeOutcomes • One enforcement directive – D 019 • Preserve and/or improve industry compliance rates • Noncompliances events are handled consistently and fairly • Compliance Performance of Industry is measured and reported

18. EUB Enforcement Principles: • Public safety and environmental protection will not be compromised. • Enforcement will be timely, effective and appropriate. • The licensee is responsible for compliance with EUB requirements and processes.

19. Directive 019 • Outlines • What to do when a noncompliance event is identified • The enforcement process and consequences for noncompliance • Voluntary self-disclosure policy • Enforcement appeal process • Availability of information

20. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Risk Assessment Surveillance and Audits Performance Reporting Communications and Education Implement Clear Process and Regulations Implementation of Systems and Tools

21. Directive 019 – Risked based • Risk Assessment Matrix to predetermine the level of risk inherent in any noncompliance. • Consequences of each event are balanced against the likelihood of occurrence to determine a rating of high or low risk.

22. Enforcement Based on Risk

23. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Performance Reporting Risk Assessment Surveillance and Audits Communications and Education Implement Clear Process and Regulations Implementation of Systems and Tools

24. Enforcement Based on Risk Low Risk Non Compliance Event Low Risk Enforcement Can lead to High Risk Enforcement Action 1 . • High Risk Enforcement • Action 3 High Risk Non Compliance Event Can lead to Can lead to

25. Persistence Process • Definition of Persistent Non-compliance ( D 019): an unacceptable rate, ratio, percentage or number of non-compliances by a licensee in the same or in different compliance categories. • Early Intervention - Outreach More detail on persistence is available on: www.eub.ca/industryzone/compliance

26. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Implement Clear Process and Regulations Risk Assessment Surveillance and Audits Performance Reporting Communications and Education Implementation of Systems and Tools

27. Voluntary Self Disclosure • Encourage licensees to proactively identify, report and correct non-compliance. Benefits • No enforcement • Improved relationship with regulator • Improved public safety, protection of the environment, and regulatory confidence

28. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Risk Assessment Surveillance and Audits Performance Reporting Communications and Education Implement Clear Process and Regulations Implementation of Systems and Tools

29. Compliance “Tools” • Letters requiring remedial action - Preventative Action Plans • Administrative Fees • Terms and Conditions • Self Audit or Inspections • Third Party Audits or Inspections • Focused REFER • Global REFER

30. REFER Status Focused REFER: An enforcement status limited to a single compliance category that results in a rigorous review of a licensee’s applications. Global REFER: An enforcement status that results in all of the licensee’s applications being processed as non-routine and brought before the Board for approval.

31. Compliance “Tools” • “Persistence” Designation – Root Cause Analysis based Action Plan • Partial or Full Shut in • Suspension of Permit, Licence or Approval • Cancellation of Permit, Licence or Approval • Public Reporting of Enforcement Actions

32. Compliance “Tools” • Name Accountable Party Declaration • Inquiry – Hearing • Prosecution – Fines

33. Enforcement Appeals • Fairness • Licensees are encouraged to fully discuss enforcement actions with the EUB group first • Appeals to the enforcement advisor must: • Be submitted within 60 days • Be in writing • Explain why the licensee disagrees with the enforcement decision

34. Compliance Achievement Prevention Continuous Performance Improvement Enforcement Actions Processes Risk Assessment Surveillance and Audits Performance Reporting Communications and Education Implement Clear Process and Regulations Implementation of Systems and Tools

35. Compliance Reporting • ST – 99: Field Surveillance and Compliance Summary • ST-108: EUB Monthly Enforcement Action Summary • Licensee Compliance Summaries

36. 2006 Enforcement Summary

37. Compliance “Incentives” • OSI Surveillance – reduced inspection priority for superior performance • Voluntary Self Disclosure – No Enforcement • Streamlined Application Process for Routine Applications • Compliance Summaries (comparison to industry average) • Outreach

38. Internal Capacity • Increased through the use of systems and tools: • Education • Fairness in Enforcement DVD • Risk Processes • Mapping Business Process

39. Moving Forward…. • Improved Regulatory Clarity • More Flexible Effective Authorities and Tools e.g. Administrative Penalties; Updated Fees and Fines • Open Compliance Category Performance Reporting • Joint EUB-Licensee Surveillance - No Enforcement • Licensee Recognition Program

40. Moving Forward… • Refine Surveillance Protocols • Training and Certification • Acceptance of “certified” licensee verification of compliance using common protocols with data verification • Regulatory Performance Forum

41. Regulatory Clarity • Regulatory Management Program under development • Formalizing the continual improvement of EUB processes. • Lifecycle approach to managing our regulatory processes

42. Regulatory Lifecycle Process

43. Opportunities • Expand Role of Public Advisory Committees – Synergy Groups • Differentiated Regulatory Streams • Rigorous Management Systems • Beyond Compliance Programs (BCP) • Sustainability Reporting • Technology

44. Next Steps • Continue CAI • Improve outreach and early intervention communications. • Develop a Recognition Program • Fees and Fines • Training and Certification • Regulatory Management Program • Improve Performance Reporting

45. Summary • Alberta development mature with large diverse licensee population. • Alberta requirements a mix of prescriptive and goal / performance based requirements • D - 019 Compliance Assurance – Enforcement provides common framework for administrative based enforcement • Enforcement is Risk Based with remedial focus • Variety of Tools and Incentives employed

46. Additional Information Contact: Corporate Compliance Group (403) 297-3710 EUB.ComplianceCoordination@gov.ab.ca More information: www.eub.ca/industryzone/complianceandenforcement