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Demonstrators disrupt the National Energy Board public hearing into the Energy East pipeline project on Aug. 29, 2016, in Montreal. A panel is now recommending a complete overhaul of the regulator.Paul Chiasson/The Canadian Press

The National Energy Board faces a "crisis of confidence" and needs to be fundamentally overhauled, including loosening its ties to Calgary, a government-appointed panel concluded in a report released on Monday.

The panel report comes as the NEB resumes its review of the $15-billion Energy East pipeline project, which was derailed over complaints of bias after board members met privately with stakeholders in Quebec, including former premier Jean Charest, who was then on a contract as a consultant for TransCanada Corp.

Natural Resources Minister Jim Carr welcomed the report, but said the government would consult further with Canadians before introducing reforms next fall to overhaul how Ottawa regulates the energy industry and assesses proposed projects including mines, power-transmission lines and pipelines. He defended the government decision to review TransCanada's Energy East proposal under the National Energy Board regime the Conservative government put in place in 2012.

"We established interim principles [in January, 2016] to govern those projects already under review; it's the simple test of fairness," he said. "Those principles include not going back to square one" for projects that had already filed an application. However, the government added some extra consultations, notably with Indigenous communities.

As he looks to reverse changes the Conservatives made five years ago, Mr. Carr said the new regime would govern how Canada develops its resource sector "for a generation to come," although the oil industry is not expected to need new crude-oil pipeline capacity if currently proposed projects proceed.

In the report released on Monday, the five-member advisory panel concluded that the National Energy Board "has fundamentally lost the confidence of many Canadians."

It recommends the NEB be overhauled and renamed the Canadian Energy Transmission Commission (CETC), with appointments from a broader cross-section of society and a board of directors based in Ottawa. The main office would remain in Calgary, but board members would no longer be required to live there, and satellite offices would be established throughout the country.

"We heard that Canadians have serious concerns that the NEB has been 'captured' by the oil and gas industry, with many Board members who come from the industry that the NEB regulates, and who – at the very least appear to – have an innate bias toward that industry," the panel report said.

It argued the NEB's pipeline assessments have become a forum in which Canadians debate the tradeoff between oil and gas development and environmental issues such as climate change, and not simply the effects of the project and technical requirements. To deal with that, the panel suggests all major proposals undergo a two-step approval process: one year to determine whether it is in the national interest and consistent with government policy, and then two years to conclude an environmental assessment.

Panel member Brenda Kenney said the proponents and other stakeholders would benefit from having government determine – after a public review – whether a project is broadly consistent with Canada's national interest before they spend time and money on a detailed assessment. Ms. Kenney is former president of the Canadian Energy Pipeline Association, an industry lobby group.

The advisory group also proposed a far more significant role for Indigenous communities in project approvals, including the establishment of an Indigenous major projects office that would provide support for communities to engage in the regulatory process.

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