The OEB Modernization Report

The Provincial government yesterday released the OEB Modernization Report.

The Report will be considered by the government when it announces its energy regulatory reform plans in the next few weeks.  The main recommendation in the Report focuses on the OEB’s internal governance:  it recommends that the OEB be replaced by a newly named Ontario Energy Regulator to be governed by a board of directors with a non-executive Chair as well as a Chief Commissioner who would be responsible for adjudication.  Both the name change and the structure reflect the federal government’s proposed reform of the National Energy Board (also to be renamed as the Canadian Energy Regulator) through Bill C-69, which is currently before the Senate.

Apart from this governance change, the Report makes a few useful suggestions but leaves the most important issues unopened and even unaddressed.  It will be the treatment of these open issues that will determine whether these reforms will improve or harm energy regulation in the province. 

First, the useful suggestions.  The Report recommends necessary changes to ensure that the Board operates more effectively, in particular, that it prioritizes its regulatory agenda and be evaluated against key performance indicators that relate to matters such as decision time cycle, stakeholder satisfaction and organizational excellence.  The focus on operational improvement of the OEB’s performance is welcome.

The real challenge with the Report is that it does not address the implications of the proposed structural reform.  The concern is that the Board of Directors will ultimately be answerable to the government of the day.  While regulatory accountability is important, independent regulatory decision-making is also important and the Report fails to address how the proposed structure will foster that.  In fact, the Report, if implemented, can lead to a much less independent regulator than we currently have.

First, the Report states that the Board of Directors will be charged with “ensuring the independence … of the adjudication process.”  However, the President and the Board of Directors can be expected to have a close relationship with the government, and it is the government that is the source of challenges to independence.  Making the Board responsible for the independence of commissioners puts the fox in charge of the henhouse. 

By comparison, Bill C-69 enshrines commissioner independence in legislation.  The following provision of Bill C-69 sets out a good division of authority between the Board and the Commission and should be adopted in Ontario:

“The Chief Executive Officer is responsible for the management of the Regulator’s day-to-day business and affairs, including the supervision of its employees and their work.  The Chief Executive Officer must not, however give directions with respect to any particular decision, order or recommendation that is made by the Commission or a commissioner”.

The Ontario regulatory decision makers will also need this statutory protection against the government and against the Board of Directors.

Second, the Report refers to the Commissioners exercising adjudicative authority to make decisions in specific cases but does not address the fact that the OEB has many other processes and policy instruments for which independence is also required.  Some of the most important regulatory issues are addressed either in OEB guidelines (e.g., incentive-based regulation cost of capital, LDC merger policies) or codes and rules (connection requirements, affiliate relationships, and codes of conduct).  It is self-evident that these should be carried out by the independent commissioner side.  But these are not even addressed in the Report.

Third, the Report does not address perhaps the largest problem in the sector, which is the lack of regulatory oversight of procurement of capacity.  This problem and its financial consequences have been noted by the Auditor General and is obvious to anyone that has paid electricity bills.  Yet the Report does not address how the OEB’s mandate should be changed to provide that oversight. Ontario is one of the very few jurisdictions in the Western world without oversight over procurement and the cost consequences have been devastating.  Unless this changes, the OEB reform will be largely meaningless to Ontario ratepayers.

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