Operating in the sometimes hazy borderzone between the realms of public policy and system management, regulation plays a key role in society, and is absolutely crucial for the development and operation of the electric power system. Even though they depend on it to protect them against the vagaries of the market and the potential excesses of key actors, few members of the public fully appreciate how the regulatory system operates, or the challenges it faces in continuing to protect them from unseen risks.
The world is changing rapidly, particularly in terms of the financing of major economic initiatives. As discussed in these pages recently, the Ontario Energy Board and the other agencies that play roles in regulating the electric power sector in Ontario are looking closely at what they may need to do, if they are to continue to provide stability and a sense of equity in an increasingly turbulent and unpredictable environment.
Even before the banking crisis and economic downturn of 2008, Ontario’s regulators were considering changes to better meet their objectives and the public’s expectations. As John Dalton pointed out in his Environmental Scan for the Ontario Energy Board’s Strategic Business Plan (IPPSO FACTO, November 2008) the OEB will be dealing with greater uncertainty in coming years and will almost certainly develop new techniques for managing risk. The other central agencies and players in the sector are undoubtedly developing their own abilities to foresee and respond to change, making the whole sector more agile and interactive.
In this kind of environment, the need for regulation to establish a sense of order and stability is greater than ever. In fact the very forces of change that make regulation more needed, are also those that make it harder for regulators to do their job. Whether they are simply preserving the functions already being provided, or trying to define new ways to meet their objectives that are more suited to current circumstances, the challenge is considerable.
Regulation is a critical part of the solution to many of the problems in the power sector. It will undoubtedly play an increasing role. But how should the power industry and other stakeholders provide input about the rules under which the regulators operate? That is a key question that is up to APPrO members and the industry as a whole to address. Given how critical these questions are, IPPSO FACTO intends to publish a range of commentary and advice on how the power industry and its regulatory system need to evolve, or co-evolve, as the case may be.
How much of a role will the power industry and other stakeholders play in helping to define the terms and context in which the regulators operate?
Although it’s premature to make predictions, a few common threads are becoming apparent. Throughout the energy industry, whether you are looking at regulation or planning, one of the greatest sources of uncertainty is public policy. No matter how well-intentioned or well-developed, the risk of major change in public policy seems to be everyone’s “Z factor” making it harder to for industry to put investments in the ground, or for regulators to get their systems fully deployed. Key players, especially those with investments on the line, get a little unnerved by the prospect of sweeping changes being made at any time, without warning. That’s one reason why governments enjoy such praise when they come out with a clear statement of policy, one that has the hallmarks of having been carefully worked out and designed to stand the test of time. And that’s probably why you will see a recurring message in some of the comments in this special feature: Change in policy is inevitable, and well-developed public policy is paramount in establishing the basic model at work in the energy sector. However, if the planning system and the regulatory system are to work at their best, there should be a lot of co-ordination between regulators and policy-makers and a relatively limited number of well-defined points at which changes in public policy are inserted into the plans or into the regulatory process. If those principles are respected, the system can respond well to new policy, adapting relatively quickly and efficiently.
The ability to make significant policy changes is important for proper governance. To work best in complex systems however, policy changes need to be transparent and carefully-timed to respect the depth of their interactions with other parts of the system. A key principle in this process is to always maintain a clear distinction, or a “bright line” as some people say, between the role of government and the role of regulators and planners. When it’s time to make a change, by all means, new policy-driven requirements should be inserted into the process. But it’s important to be systematic about making change. Policy adjustments, like those entailed in Supply Mix Directives, are most effective if well-defined, and part of a well-understood longer-term process.
In this issue of IPPSO FACTO we present two articles to set the stage for what many believe will be an ongoing and increasingly relevant discussion in the sector: First of all, George Vegh examines whether some of the fundamental premises of energy regulation are still applicable in the current policy environment. Second, a substantive paper by Glenn Zacher examines the regulation of power transmission in particular, and the challenges it will be facing in responding to the province’s power system plans in an environment of increasing interaction. Observations by Pamela Nowina, AJ Goulding, Dave Goulding, and Sean Conway fill in further parts of the picture. We also include reports on the OEB’s recent proposed changes to the TSC, and the new Hydro One transmission rate case. Although some light will be shed by these writings, for most readers they will probably serve to open up new questions, to point out the areas in which further work is most needed.
In a coming issue we will be inviting these same sages and others to offer more prescriptive advice: where should the system be going, and what should the sector be doing to improve the chances of evolution to a sensible and workable form for the future?
APPrO invites your comments as a member of the power industry on these crucial questions, either in response to what you see on these pages, or more generally in response to issues you see in the regulatory field as it affects the power business. We also invite suggestions on what kinds of experts should be featured in forthcoming editions, to ensure the questions are examined from a balanced set of perspectives.
Major questions remain, from the traditional quandaries about balancing the interests of different groups, to how to ensure an adequate public understanding of the regulator’s functions. There are few easy answers when one asks how to harness but not constrain market forces, or how to ensure that regulators are better resourced but not too expensive. And if regulators’ responsibilities to the public are to be both well-defined and subject to periodic adjustment, how can such high-test adaptability be reconciled with being more responsive to stakeholders? The challenge of our time could have much to do with how well our sector establishes a more robust and flexible regulatory framework, and to guide the industry out of these misty realms into a future of more definitive and risk-reducing regulation.
– Jake Brooks, Editor
To access related articles in this edition of IPPSO FACTO, please see the following links:
* Where is public utility regulation going?
* At a crossroads once again: How to align electricity policy and regulatory processes
* Regulation facilitates competition and benefits consumers
* OEB adapts rules to help deal with economic uncertainty
* Comment: The changing face of regulation