Negotiated settlements and the National Energy Board in Canada

In Canada, settlements between oil and gas pipelines and users have largely superseded the litigation of major pipeline toll cases since 1995. Quantitatively, from the first half to the second half of the period 1985-2007 the average number of pipeline toll hearing days in Canada fell by three-quarters. On average, settlements last more than twice as long as litigated outcomes and have cut regulatory processing times by about one third for gas pipelines and by about two thirds for oil pipelines, with the result that regulatory processing times per effective toll-year have fallen to 13% and 27% respectively of previous levels. Qualitatively, settlements have been used to determine prices, operating and capital cost projections, return on equity, service quality improvements, risk-sharing investments and information requirements. They were the vehicle by which multi-year incentive agreements developed rapidly for all pipelines. They have also been used to introduce light-handed regulation. They have provided a mechanism for fruitful collaboration between pipelines and their customers and have changed attitudes in the industry. Two key actions of the National Energy Board have facilitated settlements by clarifying expectations and property rights: its generic cost of capital decision that removes the market power of the pipeline and enables effective negotiation with users, and 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.