EPRG 0629

Joseph Doucet, Stephen Littlechild

Negotiated Settlements and the National Energy Board in Canada

EPRG 0629 Non-Technical Summary | PDF

Abstract: Recent research suggests the widespread use and innovative nature of negotiated settlements in public utility regulation, particularly at FERC and in Florida. Such settlements began to emerge in the Canadian oil and gas pipeline sector in 1985, but did not flourish until the National Energy Board revised its guidelines for settlements in 1994. They have been used to determine prices, operating and capital cost projections, return on equity, service quality improvements and information requirements. Settlements were the vehicle by which multi-year incentive agreements developed rapidly for all pipelines. They have also been used to introduce light-handed regulation for gas gathering and processing in BC, together with a regime for reducing barriers to new entry. With the temporary exception of one gas pipeline, settlements had completely superseded the litigation of major pipeline toll cases by 1997. On average, oil pipeline settlements last about two thirds as long again as a litigated outcome and gas pipeline settlements about 2 to 3 times as long. Settlements have cut NEB processing times by about two thirds for oil pipeline applications and by about a quarter for gas pipeline applications. They have streamlined the regulatory process, provided a mechanism for fruitful collaboration between pipelines and their customers and changed attitudes in the industry. The key actions of the Board in facilitating settlements seem to have been twofold: its willingness to judge a settlement by the reasonableness of the process leading up to it instead of imposing the Board’s own values on the outcome, and its generic cost of capital decision that removes the market power of the pipeline and enables effective negotiation with users.

Keywords: negotiated settlements, regulation, innovation.

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