Author: Karen J. Taylor, MBA, CFA, ICD.D
Date: April 26, 2018
INTRODUCTION AND ACKNOWLEDGEMENT
Thank you very much for the opportunity to meet with the Ontario Energy Board Modernization Review Panel as part of a delegation from the Council for Clean & Reliable Energy (CCRE) on April 18. As you know, the CCRE’s mandate is to facilitate discussion, broaden public knowledge and understanding of the full range of available solutions on particular energy issues. CCRE does not advocate a position on energy issues. As such, the comments to the issues identified by the Panel represent my own views as an individual with financial, capital markets, regulatory and governance expertise and a deep understanding of the Ontario energy industry. Thank you for the opportunity to submit my thoughts on the issues identified by the Panel.
Issue #1 – Mandate and Activities: The Ontario Energy Board is a creature of statute, with its objects and mandate established in various pieces of legislation, notably the OEB Act. The OEB only has the authority to decide matters delegated to it by the Provincial legislature, using the tools and processes available to it via the same governing statutes. Bill 135 changed the role of the OEB from deciding how to achieve government policy in the public interest to implementing binding government plans and directives. This is a step too far. The OEB needs to be given the authority to decide how an articulated energy policy should be implemented in the public interest.
The OEB is first and foremost an economic regulator – aligning costs (prices) with other policy goals. Specific decrees that the OEB enable innovation, be modern, implement conservation first, and connect green energy should be reconsidered, as they are overly intrusive and prejudicial to a public interest mandate by limiting the OEB’s discretion to decide how to align competing objectives to achieve policy. The OEB needs the latitude to balance competing interests in an objective, fact-based manner. Similarly, no procurement contracts or other programs that are charged to customers via the Electricity Act (Global Adjustment) should proceed without an OEB public interest review.
Issue #2 – Disruption and Innovation: What do “support modernization” and “encourage innovation” really mean? The OEB is not an advocate for innovation and modernization, the same way it is not an advocate for the customer. It must ensure that its processes and approaches do not create barriers to modernization and innovation, in the public interest. The OEB needs clear jurisdiction and the tools to monitor the “seams” – where the rate regulated entity ends and the non-regulated service providers reside to ensure there is no cross-subsidization, discriminatory action by monopolistic incumbents, and so on.
The OEB must understand how new technology will enable the democratization of the electricity system (presumably shrinking or slowing the growth of the centralized distribution, transmission, and large-scale generation resources) enabling customer choice, and managing the financial risk to the legacy system which will continue to be used (if somewhat differently than in the past). The OEB must ensure there are no market failures that require regulatory intervention, as the inability to understand the nature of the market failure and the inability to act is inconsistent with the public interest. Bill 112 repealed Section 73 of the OEB Act, which listed the businesses permitted for LDC affiliates.
The perceived lack of innovation in the sector is not an OEB problem. It arises fundamentally from the following: (i) municipal ownership and the limited willingness and ability to bear risk; (ii) management of LDCs who are used to the presence of a regulator (a safety net) and are therefore inexperienced at identifying, pricing, and managing risk; (iii) lack of market signals that help determine the “value” of new technology, as opposed to its “cost”; and (iv) lack of an effective business model or revenue model, other than “put it in rate base”. These issues require longer term, structural solutions that are external to the OEB.