Ontario News

OEB plans to minimize barriers to innovation while protecting consumers

Highlighting the need to assess and manage new risks, the Ontario Energy Board has published a plan to redevelop itself as the primary regulator of the energy sector in Ontario. Titled “Strategic Blueprint: Keeping Pace with an Evolving Energy Sector,” the document was released in December close to the related announcement by the provincial government of an expert panel on modernizing the Board (see article elsewhere in this issue). Previewing the report last September, OEB Chair Rosemarie Leclair said, “We have chosen to call our new strategic direction a ‘blueprint’ because that term denotes our expectation that it will be used to build new regulatory frameworks that are both robust enough and flexible enough to adapt to changing circumstances.”

Major challenges lie ahead for the OEB and other regulators as rapid changes in technology and business models reshape the sectors they oversee and raise questions about how regulation should be structured in the future. Structuring the range of issues created by sector transformation, the Board’s blueprint document postulates four interconnected Strategic Challenges:

• Transformation & Consumer Value: How can the OEB help ensure that the evolution of the sector brings a stronger focus on demonstrable value for consumers?

• Innovation & Consumer Choice: How can the OEB incent and enable innovation that enhances consumer choice and control?

• Consumer Confidence: How can the OEB strengthen and sustain the confidence of consumers during a period of accelerating change?

• Regulation “Fit for Purpose”: How should the OEB equip itself to meet the challenges of sector transformation?

          Earlier in 2017 the OEB developed a business plan and articulated a mission statement that supports the blueprint. Its vision statement says, “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.” The mission statement goes on to outline goals that support the vision and identifies the activities it intends to pursuit in support of the goals.

          Addressing the strategic goal related to “Innovation & Consumer Choice,” the blueprint says, “The ways in which the OEB aims to achieve this Goal include:

• Remunerating utilities in ways that encourage utilities to pursue cost-effective innovation in their operations and services

• Modernizing the OEB’s rules, codes and other regulatory instruments to reflect the needs of an evolving sector

• Addressing any unwarranted regulatory barriers to innovation and new business models that benefit consumers

• Continuing the redesign of electricity distribution rates to give all customers a better signal regarding the cost of delivery service.”

          Responding to trends in the energy sector, the blueprint says, “[T]he accelerated deployment of distributed energy technologies, electric vehicles (EV) and electric-powered mass transit, together with increased investments in energy efficiency, will impact all aspects of utility operations and planning and will create new risks to be assessed and managed.

• In addition, the advent of extreme weather events associated with climate change has increased focus on the resiliency of energy systems

• Although the pace of these developments is uncertain, the potential significance and complexity of their impact is clear – both we and the entities we regulate must be equipped to anticipate and address these trends.”

          The Board also notes that, “Regulators in other jurisdictions are considering new approaches to the remuneration of utilities, including ways of treating traditional capital investments versus non-capital expenditures, that might better encourage the adoption of innovative and least-cost solutions by utilities. Given the changes underway in the sector, we should assess whether similar regulatory reforms are

warranted in Ontario and how they might further enhance efficiency and innovation in the energy sector.”

          Key questions require weighing the options for facilitating innovation against the need to protect consumers. In this regard, the Board asks:

• How can regulators identify and address regulatory barriers to innovation and new business models that benefit consumers?

• What measures are needed to protect consumers or particular subsets of consumers from some of the impacts of sector transformation (such as cost shifting, the protection of privacy, and concerns about sales practices regarding new products and services)?

• What role should incumbent utilities play in the emerging market for distributed energy resources and related services?

• How should the risk regarding underutilized or stranded assets be allocated between utilities and their customers, and are there any steps that can or should be taken to mitigate that risk?

          Notably, the Board says, “a ‘wait-and-see’ approach is not sufficient for Ontario – it would simply prolong uncertainty for both incumbents and new service providers. The OEB has the opportunity – and the responsibility – to support and guide the sector it regulates through the evolution underway:

• Support – by helping prepare utilities, other market participants and consumers for the change that lies ahead

• Guide – by working to secure the benefits and mitigate any adverse consequences of that change and uncertainty.”

          It should be noted that the OEB has already taken a range of steps to accommodate and support innovative solutions. It says, “Those initiatives include the creation of a new licence to meet the needs of energy storage facilities, the transition towards a new design for electricity distribution rates for residential customers that will ensure that distributors can facilitate the adoption of new technologies, such as net metering, by such customers, the issuance of guidance regarding the regulatory status of EV charging stations, and the proposed adoption of a new approach to the funding of the ‘optimal’ distribution and transmission investments identified through the regional planning process. Despite these diverse initiatives, the broad changes underway in the sector suggest that a more comprehensive review and ‘modernization’ of the OEB’s codes, rules, guidelines and approach to utility remuneration is warranted.”

          With respect to the primary challenge of “Transformation & Consumer Value,” the OEB aims to achieve its Goal as follows:

• Remunerating utilities in ways that encourage utilities to pursue cost-effective innovation in their operations and services

• Modernizing the OEB’s rules, codes and other regulatory instruments to reflect the needs of an evolving sector

• Addressing any unwarranted regulatory barriers to innovation and new business models that benefit consumers

• Continuing the redesign of electricity distribution rates to give all customers a better signal regarding the cost of delivery service.

          In summary, the Board says, “Our Strategic Blueprint sets ambitious goals for both the OEB and the sector we regulate. It was born of our recognition that changes underway in the sector required us to rethink our approach to regulation and the way we carry out our statutory responsibilities.”

          The blueprint is available on the OEB website.

 

See also the related article "Panel established to modernize the OEB" and editorial: Why the OEB Modernization Panel is so timely

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