Analysis and Comments

The analysis and comments below are intended to support the effective implementation of our recommendations and help achieve their intended outcomes.

Independence and Accountability (Recommendations #1, #3)

The new governance structure is the central component of the Panel's recommendations. The Panel heard that the sector sees the current governance structure as an impediment to independent decision-making and accountability. Reforming the governance structure is a solid first step toward improving trust and confidence in the regulatory system.

The Panel believes that changing the OEB's name to Ontario Energy Regulator emphasizes the breadth and depth of organizational change being proposed. The name "Regulator" reinforces that prudent regulation is the core purpose of the institution.

The governance structure of the new OER would clarify lines of accountability and strengthen independence as follows:

The Board of Directors would be composed of seven to nine Directors appointed by government. The Panel suggests the government first appoint the Chair of the Board, then other Directors of the Board with input from the Chair. In making appointments, the Panel suggests that the government develop and make public a competency matrix to ensure that the overall skillset of Board members equips the Board to administer its role effectively. The competency matrix should reflect a diversity of skills and experience, including:

• Extensive expertise in energy, regulatory, environmental, and public policy (including consumer issues);
• Corporate governance experience, including strategies for delivering on a public mandate;
• Financial and performance management; and
• Knowledge of Indigenous energy policy considerations and the diverse regional economies within Ontario.

The Board would focus on three critical roles in the leadership of the organization:

1. Performing the usual governance responsibilities of a Board, including overseeing the development and implementation of OER strategy;
2. Serving as the primary interface with the Minister and the government; and
3. Ensuring the independence and effectiveness of the adjudication process.

The Panel suggests the President be appointed by the government on the advice of the Board, following a search process conducted under the auspices of the Board. The President would be accountable to the Board for the efficient and effective management of all OER functions.

The OER's quasi-judicial role would be entrusted to Hearing Commissioners, led by a Chief Commissioner. Commissioners would adjudicate hearings and issue the OER's legally binding decisions. Commissioners would be assigned to cases by the Chief Commissioner. The Commissioners would be accountable to the Chief Commissioner for the efficient administration of their case load.

The Panel suggests the Chief Commissioner be selected and appointed by the Board, with the advice of the President. Given the importance of the adjudication role, the Panel suggests that every three months the Chief Commissioner report to an Adjudication Committee of the Board on adjudication activities, future case load, and resource requirements. Lastly, the Panel suggests that the appointment of all other Commissioners be done by the Board of Directors based on the recommendation of the Chief Commissioner.

The OER is accountable to the government. The Panel believes that given the scope of the OER, a periodic sharing of information with the Legislature about its plans and activities would be beneficial. Moreover, the undertaking of effectiveness reviews, as required by the current legislation, would also enhance transparency.

With the new governance framework in place, the OER would be well-positioned to make operational improvements that enhance regulatory certainty, efficiency, and effectiveness.

Certainty (Recommendations #2, #5)

Excellent regulators are able to process case work on a dependable timeline and can clearly communicate with the regulatory community about requirements, status, and milestones. Participants need more certainty as to what they can expect from regulatory processes. Providing this certainty is a significant component of building public trust.

It is for this reason that the Panel is recommending that the new OER develop a plan to make improvements in the adjudication process. The Panel suggests that such a plan should include:

1. A recommendation on the optimal number of Commissioners, including the ratio of full-time to part-time;
2. A recommendation on an appropriate competency matrix for the appointment of Commissioners;
3. Robust guidelines to assist Commissioners in administering effective hearings;
4. A three-year forecast of case management workload and resource requirements;
5. Modernizing the intervenor participation guidelines; and
6. Recommendations for any legislative amendments that would help the OER strike the right balance between more formal proceedings and delegated decision-making.

The development of this plan would benefit from appropriate stakeholder engagement.

Stakeholder engagement is also important when it comes to setting rules and policies that incent or require certain behavior in the energy sector. The OER cannot expect to succeed in its role if it does not have a clear sense of the challenges facing the sector, and developing this clear sense requires two-way communication with the regulatory community so that community concerns are understood. To address this, the Panel is recommending that the OER consult on and maintain a clear list of priority issues that may require a policy response, and to develop transparent and inclusive consultation processes to address them. This prioritized list, and an associated timetable, would then be reflected in the OER's strategic vision documents and business plans.

The Panel clearly heard that regulated entities are looking for more guidance from the OEB on matters related to the regulatory treatment of investment in innovation. While the OEB committed to providing this in its Strategic Blueprint, the Panel believes that the importance of this issue to the future of the energy sector requires that it receive priority attention and a generic proceeding. Taking such an inclusive approach will help the new OER enhance public trust.

Effectiveness (Recommendations #4, #8)

To demonstrate effectiveness, detailed and transparent performance measurement is critical. Excellent regulators set performance targets pertaining to their core work, and are open with the regulatory community as to how well those targets are measured and met; they also seek out opportunities for improvement.

After reviewing examples set by regulators in other jurisdictions—the Alberta Utilities Commission (AUC)^{footnote 8[8]}, the British Columbia Utilities Commission (BCUC)^{footnote 9[9]}, and the Office of Gas and Electricity Markets (Ofgem)^{footnote 10[10]} in the UK – the Panel recommends that the OER should develop, in consultation with the regulatory community, new KPIs. These should include:

• Decision Cycle Time: The OER should revamp the metrics it uses to track the adjudicative process to determine if hearings are hitting milestones and if decisions are issued in an appropriate timeframe. This will require consultation to determine an acceptable timeline for various hearings. Ofgem includes significant detail and transparency on how it performs on various types of proceedings. AUC offers a strong example of how to set decision cycle metrics for various types of cases that challenge the regulator to meet high performance expectations: 100 per cent target for decisions within 90 days of the closing of the record; proceedings have a range of target days depending on process type.
• Stakeholder Satisfaction: The OER should do more to track and report on how stakeholders perceive the regulator's performance. This includes reporting on whether or not stakeholders believe the OER is addressing the important policy issues of the day, how effective it is at delivering its responsibilities, and if it consults well. This will help OER management determine if long-term objectives are being achieved.
• Organizational Excellence: The OER should report on its internal operations to showcase its commitment to being an excellent regulator. The report would include information about financial efficiency measures as well as employee engagement. Both AUC and BCUC seek to surpass their respective provincial government's employee engagement score. Ofgem also tracks how quickly it responds to concerns of "whistle-blowers" identifying potential problems in the sector.

The OER should provide enough detail and transparency to ensure KPIs are useful for identifying opportunities to continuously improve. The OER should make use of best practices such as SMART (specific, measurable, achievable, relevant, and time-bound). KPIs should be reviewed periodically so they create stretch goals for the organization and promote accountability.

Effectively delivering on performance targets will also require that the OER retain a highly skilled workforce that can respond to the complex challenges the regulator will face. If the OER is unable to properly assess an innovative investment or business model proposed by a utility, Ontario consumers may not get best value for money. Accordingly, the Panel is recommending the development of a human capital plan. The OER must constantly be aware of the skillset it has on hand, what it might need in the future, and where there may be gaps to address.

Efficiency (Recommendations #6, #7)

Finally, like all public bodies, the OER is responsible for the prudent use of the funds available to it. Transparent and appropriate use of resources is especially important for self-financing agencies like the OER, which has the power to levy costs on the utilities it regulates that are then passed on to consumers. Excellent regulators also continuously seek to find efficiencies in their use of resources; the goal of any regulator should be to deliver its work at the lowest cost possible to the ratepayer.

As such, the Panel is recommending that the OER conduct a review of the organization's finances to identify areas where efficiency improvements can be made. If information is available, benchmarking costs against other regulators should be undertaken. The Panel expects that this review will identify sources of savings that can offset any costs associated with the implementation of the new governance framework, identifying areas where the outcome of activities cannot justify the expense. Such potential savings could be in activities such as program delivery, which is not a core OEB purpose, or consumer outreach activities, which may be duplicating the work of other energy sector organizations. Once a new financial baseline is set, the OER should expand the transparency of its financial reporting in the Annual Report to make clear to the public what the major cost drivers of the OER's work are and what is being done to bring costs down year-over-year. This level of public reporting will help create the accountability necessary to pursue efficiency improvements.