Haphazard oversight by the Canadian Energy Regulator (CER) may have enabled a lax safety culture at Crown-owned Trans Mountain Corporation that is now making insurers nervous about backing the company’s existing 68-year-old pipeline and its efforts to complete a C$12.6-billion expansion project, a retired insurance executive says.

The critique landed just days before Indigenous peoples, affected communities, and climate campaigners “from Vancouver to London to Sierra Leone” launched a Global Week of Action June 14-21 (open letter here) calling on insurers to drop the controversial pipeline, according to a release from the U.S. Sunrise Project.

Independent economist Robyn Allan, former president and CEO of the Insurance Corporation of British Columbia, made the comments in the wake of Argo Group’s announcement earlier this month that it won’t be renewing its policy with Trans Mountain. “We currently insure the Trans Mountain pipeline, but do not intend to renew when the policy expires in August 2021,” wrote David Snowden, senior VP of group communications at Argo Group US, in a widely-circulated email. “This type of project is not currently within Argo’s risk appetite.”

Allan said that blockbuster decision had her thinking back to Prime Minister Justin Trudeau’s remarks on the campaign trail in 2015 that the then National Energy Board (NEB) had been captured by the fossil fuel industry and needed an overhaul.

“If you’ve got a situation where insurers see that the regulator is captured, is actually controlled by the company that it’s supposed to regulate, it means they can’t trust the CER do the job of keeping Trans Mountain responsible and accountable,” she told The Energy Mix. 

“Regulators play some very important roles and one of them is ensuring that safety culture is maintained,” she explained. But even after the NEB morphed into the CER, “we have this absurd situation where Trans Mountain in the last year has shown its complete lack of safety culture and needed to shut down construction while it retrained all its employees.” Then the company began cutting down trees along the pipeline route during hummingbird nesting season, prompting Environment and Climate Change Canada to suspend the operation in late April. The CER followed with its own order in early June.

“Trans Mountain knew about the nesting,” she said. “It’s in the construction schedule. And they’re ignoring it.”

A Trans Mountain spokesperson did not reply to a phone call and two emails requesting comments for this story.

For insurers, that kind of performance paints a picture of a company “that knows what the rules are and doesn’t play by them, and does it so much, so often that it’s become part of their culture,” Allan added. “And that’s what leads to very risky behaviour.” That kind of “deviation from the norm” can be found at the root of past catastrophic events, from the 2010 Kalamazoo pipeline spill to the Challenger space shuttle disaster, she said.

“You can link all of these major events back to a corporate culture where people know what the rules are but aren’t held to account by management or the regulator. Over time, their behaviour becomes more and more risky until a major disaster occurs.”

Allan said the CER made matters worse when it accepted Trans Mountain’s “bogus argument” for keeping the identities of its insurers secret—a decision she said showed “such a bias” over calls by the Tsleil-Waututh Nation Sacred Trust Initiative to discuss their free, prior, and informed consent with insurers.

“By making the certificate of insurance confidential and removing a layer of transparency, the CER has reduced the options for Tsleil-Waututh Nation to assert our inherent and constitutionally protected Aboriginal rights and fulfill our sacred obligation to protect and steward our territory,” Sacred Trust Initiative spokesperson Charlene Aleck said at the time.

“So, yes, the CER has exacerbated the problem,” Allan added. “It’s a captured regulator, and it holds Trans Mountain to a different standard than it holds First Nations, environmental intervenors, landowners, and anyone else who is a party to these hearings, That would certainly scare me as an insurer.”

Ironically, by allowing Trans Mountain to keep its insurance arrangements secret, the CER forced campaigners to reach out to any underwriter who might be working with the company, which in turn is forcing the companies to declare themselves, Allan contended.

“Now every insurer will have to come forward so they are no longer communicated with about what their intentions are,” she said. “The whole situation has really drawn an awful lot of attention to both the CER and Trans Mountain,” and it was all “absolutely” an unforced error on the CER’s part. “The reason the CER so willingly walked into this situation is that for decades they have been serving the industry’s needs and not the public interest. They’re probably not even aware of what they’ve done because they’re so used to applying a double standard whenever it comes to protecting the public interest.”

James Stevenson, a CER technical specialist in strategic communications, said the regulator “promotes safety culture learning and advancement across industry and it expects that the companies it regulates build and maintain a positive safety culture.” That culture “encompasses the everyday attitudes, values, norms, and beliefs that leaders and staff share about risk and safety (including environmental protection),” he told The Mix in an email. “It influences people’s behaviours, decisions, and actions in an organization, ultimately driving safety outcomes and performance.” 

Federal onshore pipeline regulations require companies to have a “carefully designed and well-implemented management system,” Stevenson added, consisting of a “collection of processes and procedures that a company uses to manage its operation in order to achieve the outcome of protecting people and the environment.” The CER conducts routine inspections of the companies it regulates, “we do not hesitate to take enforcement action if required, and we do so fairly and transparently,” he said.

But Allan said insurance companies have not been overly impressed with the results they’re seeing from either the company or the regulator.

“There’s a relationship between insurers and insured that keeps losses low, and when an insurer says it doesn’t have an appetite for your risk, you’ve got to know that comes after they’re not getting the response they want from the company about how to mitigate their losses. So Trans Mountain has shown its insurers that it’s not listening about how to keep a 68-year-old pipeline safe. If they’re not listening, we have to be really worried about the spills or the tank farm explosions that are coming. Then the catastrophic events happen and it’s, ‘oh, sorry, we have zero tolerance for losses’. It’s nothing but a PR scam, before and after.”

Asked how the CER enforces its safety expectations and gets practical results, and how the public is to find out about administrative actions in response to safety concerns, Stevenson responded with details on the regulator’s incident review process, the compliance and enforcement reports it publishes after compliance verifications and audits are complete, and the complaint process it makes available to landowners when disputes can’t be resolved.

“In addition to investigating specific incidents, the CER also collects, analyzes, and publishes data and information about all incidents reported to us,” he wrote. “The CER believes that communicating our analysis to industry with safety or information advisories is a useful way to share lessons learned and bring attention to potential issues or trends to improve how to keep energy moving safely.”

Allan said that process dates back to a “modest administrative penalty system”, first introduced by the NEB that is “inadequate because it does not result in the adjustment of risky behaviour.”

Trans Mountain “had two serious safety incidents in 2020, and surprisingly, the CER did not take regulatory action to halt construction on the expansion project,” she added in an email. “It was Trans Mountain that made that decision. Furthermore, the CER undertook a review of the incidents but Trans Mountain did not wait for the CER’s report to decide to reopen. This suggests the regulator has improper administrative discipline to deal with the companies it regulates.”