EUB Compliance Assurance InitiativeThe Regulatory Craft in Nova Scotia November 20-21 2007Hal Knox

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

OverviewEUBAlberta ContextEUB Compliance Assurance InitiativeCompliance Tools and IncentivesDirective 019OpportunitiesSummary

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

Regulatory FrameworkGovernmentsets policyOtherGovernmentdepartmentsPublicRegulatorsadminister policyIndustrydevelops projectsLEGISLATIONREGULATIONS

Facilities/scheme approvals Information collection and dissemination Compliance/inspections Correlative rights Utility ratesPrimary Energy Industry Regulatory InterfacesSurface RightsBoardAlberta Sustainable Resource DevelopmentAlberta EnvironmentPublicAlberta Energy and Utilities BoardAlberta EnergyNational Energy BoardAlberta Human Resources and EmploymentEnergy policy Mineral rights Royalty Pre-drilling explorationGas Export Federally-regulated pipelinesOccupational health and safetyNotice of applications Information Directly affected Public HearingsEnvironmental impact assessment Pollution controlEnvironmental standards and approvalsSurface access and rights-of-way on privately-owned landEnergyIndustry

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

Energy Facilities in Alberta 2006Producing Oil and Gas Wells..159 546*Pipelines 392 232 kmGas 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 projectsOil 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

Energy Facilities in Alberta 2006 Batteries*and Compressor Stations21 616 oil 12 243 gas Coal mines 9 open/strip pits 2 small open pits 1 underground 1 not producingElectric 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

Annual Alberta Energy Production - 2006Conventional oil31.5 million m3Bitumen in situ28.7 million m3 surface-mineable.44.1 million m3Natural gas138.3 billion m3 *Natural gas liquids38 million m3Coal2.5 million tonnes

* Including 1.2 billion m3 CBM Note: billion = 109

2006 EUB ApplicationsWells .25 399Production facilities ..3 540Pipelines. ..16 410Oil sandsIn situ 242Mineable 3Coal.. 11Reservoir development.. 5 164Environmental review 451Utilities 779

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."

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

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

Compliance Assurance Initiative BenefitsIncreased 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

Compliance Assurance InitiativeOutcomesOne 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

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.

Directive 019OutlinesWhat to do when a noncompliance event is identified The enforcement process and consequences for noncomplianceVoluntary self-disclosure policyEnforcement appeal processAvailability of information

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

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.Directive 019 Risked based

Enforcement Based on Risk

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

Enforcement Based on RiskLow Risk Non Compliance Event Low Risk EnforcementHigh Risk Non Compliance Event

High Risk Enforcement Action 1 .

High Risk Enforcement Action 3

Can lead to

Can lead to

Can lead to

Persistence ProcessDefinition 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

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

Voluntary Self DisclosureEncourage licensees to proactively identify, report and correct non-compliance.

BenefitsNo enforcementImproved relationship with regulatorImproved public safety, protection of the environment, and regulatory confidence

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

Compliance Tools Letters requiring remedial action - Preventative Action PlansAdministrative FeesTerms and ConditionsSelf Audit or InspectionsThird Party Audits or InspectionsFocused REFERGlobal REFER

REFER StatusFocused REFER:

An enforcement status limited to a single compliance category that results in a rigorous review of a licensees applications.

Global REFER:

An enforcement status that results in all of the licensees applications being processed as non-routine and brought before the Board for approval.

Compliance Tools Persistence Designation Root Cause Analysis based Action PlanPartial or Full Shut inSuspension of Permit, Licence or ApprovalCancellation of Permit, Licence or ApprovalPublic Reporting of Enforcement Actions

Compliance Tools Name Accountable Party DeclarationInquiry HearingProsecution Fines

Enforcement AppealsFairnessLicensees are encouraged to fully discuss enforcement actions with the EUB group firstAppeals to the enforcement advisor must:Be submitted within 60 daysBe in writingExplain why the licensee disagrees with the enforcement decision

Compliance AchievementEnforcement ActionsPreventionImplementation of Systems and ToolsRisk AssessmentSurveillance and AuditsPerformance ReportingCommunications and EducationContinuous Performance ImprovementImplement Clear Process and RegulationsProcesses

Compliance ReportingST 99: Field Surveillance and Compliance Summary ST-108: EUB Monthly Enforcement Action Summary Licensee Compliance Summaries

2006 Enforcement Summary

Chart1

25120629304

Satisfactory

High Risk 1

High Risk 2

High Risk 3

Sheet1

Surveillance StatisticsSurveillance Statistics

All Audit/Inspection CategoriesAll Audit/Inspection Categories

January 1, 2007 - April 30, 2007January 1, 2006 - December 31, 2006

Totals:SatisfactoryHigh Risk 1High Risk 2High Risk 3TotalSatisfactoryHigh Risk 1High Risk 2High Risk 3Total

January14918032157620062512062930425783

February174968131821Totals:2512062930425783

March163364121700Percentage:97.43%2.44%0.12%0.02%

April169834401736

Totals:6571246976833

Percentage:96.17%3.60%0.13%0.10%

Sheet1

0000

Satisfactory

High Risk 1

High Risk 2

High Risk 3

Sheet2

0000

Satisfactory

High Risk 1

High Risk 2

High Risk 3

Sheet3

Compliance Incentives

OSI Surveillance reduced inspection priority for superior performanceVoluntary Self Disclosure No EnforcementStreamlined Application Process for Routine ApplicationsCompliance Summaries (comparison to industry average)Outreach

Internal Capacity Increased through the use of systems and tools:EducationFairness in Enforcement DVDRisk ProcessesMapping Business Process

Moving Forward.Improved Regulatory ClarityMore Flexible Effective Authorities and Tools e.g. Administrative Penalties; Updated Fees and FinesOpen Compliance Category Performance ReportingJoint EUB-Licensee Surveillance - No EnforcementLicensee Recognition Program

Moving ForwardRefine Surveillance ProtocolsTraining and CertificationAcceptance of certified licensee verification of compliance using common protocols with data verificationRegulatory Performance Forum

Regulatory ClarityRegulatory Management Program under development

Formalizing the continual improvement of EUB processes.

Lifecycle approach to managing our regulatory processes

Regulatory Lifecycle Process

OpportunitiesExpand Role of Public Advisory Committees Synergy Groups Differentiated Regulatory StreamsRigorous Management SystemsBeyond Compliance Programs (BCP)Sustainability Reporting Technology

Next StepsContinue CAIImprove outreach and early intervention communications.Develop a Recognition ProgramFees and FinesTraining and CertificationRegulatory Management ProgramImprove Performance Reporting

SummaryAlberta 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 enforcementEnforcement is Risk Based with remedial focusVariety of Tools and Incentives employed

Contact:

Corporate Compliance Group (403) 297-3710

EUB.ComplianceCoordination@gov.ab.ca

More information:www.eub.ca/industryzone/complianceandenforcementAdditional Information

Enforcement appeals are a tool available to licensees if they do not agree with an enforcement action they received. Enforcement actions may be overturned at the group levelLicensees may appeal enforcement actions to the Enforcement Advisor that have not resulted in prosecution or issuance of a Board Order.The enforcement advisor will consider the information for errors of fact, regulatory requirements, and process.The5 reasons for granting an appeal are:Licensee was in complianceError in LawEUB or another government agency contributed to the noncomplianceNoncompliant event wasnot risk assessed EUB Group applied the wrong level of risk

Statutory Reviews and Appeals:A licensee can appeal a decision of the Board or request a review of a Board decision by the Alberta Court of Appeal. The EUB recommends that licensees pursue resolution through the Appeals process prior to a statutory review and appeals process.