National Energy Board member warns of risky cost-cutting
Effective maintenance programs best way to protect against spills
Canadian industry has been warned to stand on guard against a potential safety flaw in Canada’s pipeline regulatory regime by a member of the National Energy Board (NEB), Bob Vergette.
He told an annual fall international pipeline conference in Calgary that the vulnerable spot is created by the agency’s policy of accepting negotiated cost-of-service settlements which are known as “incentive tolling agreements.” The deals include provisions for cutting expenses and divvying up the benefits in the forms of toll savings for shippers and increased earnings for pipelines. The regulatory practice grew out of a keen desire by all concerned to reduce time and money that was poured into complex financial wrangles before the NEB, which used to be periodic features of the Canadian energy transportation scene.
The tolling agreements can blur lines between costs of ensuring the pipelines’ “integrity,” or leak-proof strength, and routine operations and maintenance (O&M) expenses, observed Vergette. “There are O&M cost reductions that are not identified as ‘integrity’ costs that can nevertheless affect integrity. An example is maintenance staff reductions.”
While saying he was only expressing one NEB member’s views rather than formally announcing any new policy, Vergette delivered a clear message to pipelines and their shippers alike that the board is aware of the dangers of cutting corners and is watching out for any relaxation of safety standards. “Companies should be wary of the potential impact on pipeline integrity of a continuing focus on containing costs over the years. Maintenance and integrity costs should be considered a legitimate cost of providing service, and reducing costs should not take precedence over ensuring proper maintenance and integrity, safety and environmental protection,” Vergette said.
“Pipelines in Canada are aging,” the NEB member observed. “Given the ability of existing technology to extend physical life, effective maintenance programs can result in very old pipelines continuing to operate safely. However, older pipelines require more maintenance than new ones.”