Toronto: At the APPrO conference on November 17, Ontario Energy Board Chairman Howard Wetston said a regulator has to be open to new ideas, and outlined a number of initiatives the Board is taking to implement the Green Energy Act, particularly its provisions relating to generation. A few days later, speaking at the Toronto Board of Trade, he made it clear just how extensive the impact of the associated changes could be. In effect, the OEB notified all players in the sector that a range of regulatory decisions coming from the Board in the future will place significantly more weight than ever before on a new set of considerations - including the promotion of renewable generation.
A key aspect of Ontario’s Green Energy and Green Economy Act was the addition of new objectives to the OEB’s mandate. The Board’s objectives have been amended to include the promotion of the conservation of electricity and demand management, facilitating the implementation of a smart grid and “the promotion of the use and generation of electricity from renewable energy sources.”
Economic regulation traditionally tries to balance consideration of returns to shareholders with minimizing costs to consumers, and to produce economically efficient outcomes. The new Green Energy legislation and policy means that the Board has to pay greater attention to certain social and environmental factors specified by government policy, in addition to the original economic goals. This could mean for example, that a new transmission line which might have been considered too expensive on a straight economic cost/benefit analysis last year, could be judged acceptable in future, if it produced renewable energy benefits of the type aimed at by Ontario’s green energy policy.
The importance of the change outlined by Mr. Wetston was not lost on Hydro One or other major utilities in the sector. Regulated companies make it their business to follow closely any adjustment in the factors that a regulator weighs when considering applications for rates or approval of investments. The Board’s new responsibilities could lead to significant changes in the applications that regulated utilities bring before it: The goals that proposed investments would be designed to meet, and how the applications are framed and assessed, could be tailored to the new objectives. As a result, there will likely be significant new opportunities for certain kinds of generators who need to use grid infrastructure.
The new objectives are a clear indication that the context in which the Board will carry out its mandate has changed. It now has, in effect, additional responsibilities on top of its original ones. Consideration of the new factors is now a fundamental requirement for the regulator as it goes about its business, Wetston told the APPrO audience. It is always important, he suggested, for the Board to be adaptive, to take into account the vision and objectives expressed in government legislation and in public policy. Although the Board has to maintain its independence as a regulator, it is tasked with regulating the sector in a manner that supports the government’s policy goals as set out in legislation. Adaptation therefore means something relatively precise, according to Wetston: Looking for new ways of doing business to facilitate the achievement of the objectives of the Act.
Mr. Wetston hastened to point out that despite the new objectives, the Board has not lost sight of its original duties to protect the consumer and watch out for the economic well-being of the sector. During a period in which the speed and frequency of policy changes is relatively high, it may be more difficult to achieve a sense of overall order and stability. However, it is more important for a regulator to try to achieve order and stability during such periods, he told the APPrO conference.
The Board needs to be “open to new ideas” in response to changing policy environments and the values and objectives in the green energy legislation, Wetston said. In tying concepts with such wide-ranging implications to how the Board is integrating its new objectives into its work, he is taking on a significant challenge for the Board, possibly rethinking crucial aspects of regulation in the energy sector. It is a step with potentially broad ramifications, particularly if it is emulated by other regulators and policy-makers. The impact of the new objectives was already apparent in the Board’s December 16 decision on a small change to Hydro One’s 2010 transmission rates. (See “Hydro One gets OK to build reinforcements in the north,” page 14.)
Regulatory lawyer Ian Mondrow of McLeod Dixon notes that, “a government initiative such as the OPA’s Feed-in Tariff Program, which does not place a cap on the amount of premium priced green generation to be procured, and directives regarding transmission build out and distribution infrastructure renewal, provide a new and different perspective for the application of traditional regulatory concepts such as efficiency and prudence.”
However, this does not mean that everything is in flux. Despite changes in the regulatory context and the Board’s objectives, crucial facets of the OEB’s work remain firmly established. All the Board’s regulatory functions that existed before the legislation (the review and approval of infrastructure, capital plans, rates, and license applications, for example) remain as before. Mr. Wetston noted that economic efficiency continues to be central to the responsibilities of the Board. The Board’s responsibilities to protect the consumer are as important as ever. In particular, Wetston stresses that the Board’s core regulatory values have not changed. Openness, transparency and the basic principles of fairness will continue to prevail.
Although Wetston acknowledged that there is no precise formula for weighing new factors, this should not be cause for anxiety in the sector. The OPA and other agencies are also working to integrate new responsibilities for consideration of similar objectives into their normal operation. In all cases, there may be no predetermined formula for assessing the new objectives in relation to the originals, but there is a stable, robust framework that will structure and guide their work.
As a result, while it may appear to those outside the regulatory profession that the regulatory deck has been completely reshuffled, and that change could come from any direction at any time, in fact the operation of the regulator may change only moderately, and it will likely be as methodical and principled as ever. While the factors that bear on individual decisions may be changing, participants in the electricity sector should have no need to fear for the stability or predictability of the system as a whole. In fact, to the extent that participants can adapt as the Board has, to recognize the new objectives the regulator needs to consider, predictability and stability may be enhanced.
Change is in the air, but nonetheless, prospects are good that decisions of the regulator will continue to be durable, widely accepted, and consistent with government policy and public expectations.
Jake Brooks, Editor