September 25, 2018

Dear Minister,

We are pleased to provide this report on "What We Heard" as requested in your August 30th letter. This report presents key points from submissions by energy sector stakeholders regarding the modernization of the Ontario Energy Board (OEB).

Our consultation and engagement activities were organized in two main phases.

Beginning in January 2018, various stakeholders and regulatory experts, and the Auditor General's Office helped orient the review, contributing their views as to the challenges facing energy regulation in Ontario. Seven key themes emerged as a result of these initial consultations.

In the second phase of our consultations, the Panel prepared and distributed discussion notes on these themes to facilitate engagement. During March and April 2018, over 45 organizations and individuals met with the Panel in Toronto, London, Ottawa, Sudbury and Thunder Bay. We also invited these and other stakeholders to provide written submissions; we received 60 from stakeholders across the sector.

The participants in our consultations included:

Entities regulated by the OEB

  • Industry associations
  • Consumer advocate groups
  • Regulatory lawyers
  • Innovation / technology developers
  • Academics
  • Government agencies

We also met with representatives from Indigenous communities and leaders from municipalities.

Our consultations elicited a range of views and perspectives on the characteristics of an excellent regulator. Here are the key points:

  1. Mandate: Most stakeholders stated that the OEB's mandate should be focussed on its core functions of economic regulation and consumer protection. A few submissions advocated an expanded mandate for the OEB. A few other submissions argued for removing some responsibilities from the OEB's mandate, such as program administration and rate regulating telecommunications pole attachments.
  2. Disruption and Innovation: Most stakeholders observed that new technologies and innovative business models are realities in Ontario's electricity sector. Several went so far as to say that embracing innovation is fundamental to the survival of local distribution companies. Several also felt the current regulatory framework acted as a barrier to fully reaping the benefits of cost effective innovation. Overall, stakeholders wanted greater clarity and certainty in the regulatory treatment of investments in innovation and technology.
  3. Governance Framework: Stakeholders from across the sector expressed support for enhancing the OEB governance structure, both to promote greater accountability, and to support the autonomy of the adjudicative processes. Most suggested that a board of directors could be established to provide strategic direction, oversee performance and make senior appointments.
  4. Stakeholder Relationship and Process: Most stakeholders stressed the importance of clear, open and transparent stakeholder processes in regulatory applications and policy consultation. Most stakeholders found that the OEB processes were challenging due to lengthy and uncertain timelines associated with some OEB decisions. A few stakeholders suggested that the OEB would benefit from a review of the effectiveness of its current outreach activities.
  5. Relationship to Government: Stakeholders felt that the OEB needs to be appropriately independent from government. Several stakeholders noted that prescriptive directives to the OEB may compromise its independence. A few commented on the importance of the unique skill sets the OEB contributes towards government policy development and welcomed this contribution.
  6. Regulatory Excellence and Benchmarking: Most stakeholders noted that the OEB would benefit from developing a more robust performance measurement plan with benchmarking, more meaningful Key Performance Indicators (KPI), efficient processes, and enhanced regular public reporting.
  7. Resourcing: Stakeholders noted that the OEB should have an appropriate level of resources and expertise to enable it to deliver its mandate. There was consensus that funding the OEB from the rate base should be maintained. Several stakeholders proposed greater oversight and transparency in the way OEB develops its financial and human resource requirements, and for the cost assessments allocated to regulated entities.

We are now turning our attention to our second report, targeting delivery to you by the end of October.

Finally, we would like to express our thanks to each of the participants for their input, and to the OEB Chair and staff for their engagement with the Panel. We have been impressed by the strong level of interest and engagement in the work of the Panel and the thoughtfulness of both the oral and written input.

Sincerely,

The OEB Modernization Review Panel

Original signed by
Richard Dicerni, Chair
Cara Clairman, Panelist
Bruce Campbell, Panelist

Mandate and Activities

Synopsis

Most stakeholders stated that the OEB's mandate should be focussed on its core functions of economic regulation and consumer protection. A few submissions advocated an expanded mandate for the OEB. A few other submissions argued for removing some responsibilities from the OEB's mandate, such as program administration and rate regulating telecommunications pole attachments.

Core Mandate

Most stakeholders that commented on this theme maintained that the OEB's mandate should focus on its core functions of economic regulation and consumer protection.

"...the Government of Ontario ("Government") [should] amend the statutory mandate of the Ontario Energy Board (OEB) to focus on its core function as an economic regulator."

One submission suggested that the OEB's statutory objectives need to balance the interests of consumers and regulated utilities noting that the OEB's consumer mandate has moved beyond consumer protection to consumer advocacy. This emphasis on consumer advocacy may strain OEB resources, noted another stakeholder.

Expanded Mandate

Currently, the OEB only regulates and has oversight of portions of the electricity bill. A few stakeholders felt the OEB should have jurisdiction over the whole bill in order to strengthen consumer confidence.

"...it is in the best interests of the public and the sector as a whole for the OEB's mandate to be expanded to all aspects of the electricity bill."

A few stakeholders believed OEB oversight of the IESO should be expanded. One stakeholder suggested legislative changes to strengthen the role of the OEB's Market Surveillance Panel (MSP), which monitors and reports on the functioning of the IESO-administered markets.

A few stakeholders argued that the OEB's mandate should be expanded to include an independent and public review of supply-side options, including electricity conservation and the procurement of renewable energy. Another stakeholder said that any procurement contracts charged to consumers through the Global Adjustment should first undergo a public interest review by the OEB.

A few stakeholders suggested that the mandate should be expanded to include innovation and technology development; others noted that the OEB already has the tools it needs to enable innovation.

There were also a few submissions that encouraged the OEB to take on an expanded role in fulfilling the Crown's duty to consult when projects have the potential to adversely impact Aboriginal or Treaty rights.

Reduced Mandate

A few stakeholders submitted that the OEB should not be administering programs, such as the Ontario Electricity Support Program (OESP).

"Any social programs that may be required to assist families struggling to pay their monthly energy bills should be implemented and overseen by social service agencies, which maintain the resources and expertise to manage these programs... the fees paid by ratepayers in their energy bills are being used for social service functions – thereby intermingling cost-based rates and social services."

A few others argued that the OEB should not set charges to attach telecom wirelines to the poles of local distribution companies.

Disruption and Innovation

Synopsis

Most stakeholders observed that new technologies and innovative business models are realities in Ontario's electricity sector. Several went so far as to say that embracing innovation is fundamental to the survival of local distribution companies. Several also felt the current regulatory framework acted as a barrier to fully reaping the benefits of cost effective innovation. Overall, stakeholders wanted greater clarity and certainty in the regulatory treatment of investments in innovation and technology.

Several stakeholders noted that there were barriers to innovation in Ontario's regulatory regime. The nature of these barriers varied among submissions; a few called for legislative changes to make innovation an explicit objective of the OEB. A few argued for more clarity and consistency in rate hearing decisions.

"Ontario must establish the right regulatory and market conditions that are conducive to innovation and technological change if it is to provide consumers with the most value possible...For innovation to occur, the energy landscape needs a clear, predictable, efficient and transparent regulatory system."

Several stakeholders said current rate-making practices are a barrier to innovation. They observed that LDCs typically make investments that add to the utility's rate-base, as that provides an assured rate of return on their investment. They believe that this discourages innovative solutions that are less capital intensive but do not have the same assured rate of return.

"Adjust the over-riding incentive to increase rate-base. There must be different mechanisms in place for utilities to earn profits based on reliability, service levels and most importantly, given the uncertainty, for creating optionality and flexibility in the evolution of the distribution grid."

Several stakeholders supported using the rate-base to support innovation and innovative technologies. A smaller number cautioned against rate-basing of innovation and new technologies; they believe the private sector and individuals may be better positioned to take on risk and promote innovation.

A few stakeholders acknowledged that the OEB has taken steps to address regulatory barriers to innovation by establishing an Advisory Committee on Innovation in early 2018.

Governance Framework

Synopsis

Stakeholders from across the sector expressed support for enhancing the OEB governance structure, both to promote greater accountability, and to support the autonomy of the adjudicative processes. Most suggested that a board of directors could be established to provide strategic direction, oversee performance and make senior appointments.

Board of Directors

Most stakeholders who commented on this theme suggested the OEB should have a board of directors that would perform traditional corporate governance functions.

"Improving the governance structure begins by holding the OEB accountable to a Board of Directors, including independent Directors who act in the interest of the [OEB's] stated mandate."

Stakeholders, in describing the roles for the new board, suggested:

  • setting the strategic direction of OEB;
  • implementing the legislated mandate and providing guidance on implementation of government policy;
  • overseeing budget, finances, human resources;
  • making senior appointments
  • supervising overall performance and delivery of Key Performance Indicators (KPI);
  • determining general priorities, including subjects for generic hearings on important and emerging regulatory policy issues; and
  • providing appropriate resources for the OEB's adjudicative functions

These stakeholders suggested that a new board of directors could reinforce the autonomy of the adjudicative function and provide corporate oversight to instill greater confidence across the community of regulated entities and stakeholders.

There was strong support for using a competency matrix when making appointments to the board of directors in order to ensure directors have the skills and expertise required to perform its functions.

Adjudication

Most stakeholders who commented on this theme emphasized the critical importance of maintaining clear independence of the OEB adjudicative function from other operations of the OEB.

There was also strong support for more full-time adjudicators. Stakeholders believed this would increase the OEB's efficiency and expertise, improving both hearing quality and timelines.

"Full-time panelists maintain familiarity with industry trends and issues and will have more availability to dedicate to adjudication and policy-setting. It is further anticipated that scheduling coordination across multiple panelists is more efficient when panelists have full-time availability."

Stakeholder Relationship and Process

Synopsis

Most stakeholders stressed the importance of clear, open and transparent stakeholder processes in regulatory applications and policy consultation. Most stakeholders found that the OEB processes were challenging due to lengthy and uncertain timelines associated with some OEB decisions. A few stakeholders suggested that the OEB would benefit from a review of the effectiveness of its current outreach activities.

Hearings

Most stakeholders emphasized the importance of clear, open, and transparent application and intervention processes. Concerns were also expressed about long timelines and uncertainty regarding when decisions would be rendered. They also emphasized that decision-making should be independent, fact-based, and guided by good economic principles.

A few stakeholders noted that meaningful and value-added stakeholder participation by intervenors in the adjudicative process should be maintained. However, others felt that the current intervenor process could be made more efficient.

A few stakeholders were concerned that a recent OEB initiative looking at a "proportionate review" of rate applications could give rise to excluding stakeholder interests from OEB processes.

There were a few specific proposals made for a separate Consumer or Public Interest Advocate, a Low Income Advisory Group, or a Rural and Northern Local Advisory Committee.

"The sector needs a true consumer voice capable of engaging in meaningful dialogue with other stakeholders to collaborate on constructive solution to the industry's challenges. The OEB cannot properly perform the function of consumer advocate when it must safeguard the higher public interest which requires balancing competing interests as appropriate."

Policy Consultation

Several stakeholders noted that OEB industry stakeholder and consumer advisory groups that operate behind "closed doors and by invite only" reduced the credibility of the processes and outcomes. Others noted that they would like to better understand how their input and advice would be heard and considered by the OEB.

"Policy development at the OEB should be supported by open and transparent engagement with stakeholders. Such consultation processes build trust and knowledge."

Several stakeholders observed that generic hearings are an effective way to inform stakeholders of policy development in the energy sector. They suggested generic hearings should be a regular event, with stakeholders providing input as to what issues should have the highest priority.

One stakeholder indicated that there should be more consultation in OEB decision making when adjudicating on matters related to service issues in Indigenous communities.

Public Outreach

A few stakeholders questioned the effectiveness of OEB consumer outreach activities, noting that they duplicate what local distribution companies are already doing.

"While laudable (community outreach by the OEB) these outreach activities have created confusion and survey/engagement fatigue amongst customers who are also in contact with their LDCs and others."

Relationship to Government

Synopsis

Stakeholders felt that the OEB needs to be appropriately independent from government. Several stakeholders noted that prescriptive directives to the OEB may compromise its independence. A few commented on the importance of the unique skill sets the OEB contributes towards government policy development and welcomed this contribution.

Appropriate Independence

Several stakeholders said that the independence of the OEB had been weakened by prescriptive directives from the government. They felt that it was appropriate for the government to set the broad direction of energy policy, but that the OEB should have discretion on how to implement the direction.

Several stakeholders also noted that the use of directives to the OEB needed to be more transparent, suggesting that the government should consult on proposed directives. Others thought the OEB should conduct cost-benefit studies on any proposed directive and make the studies public.

"The government's authority to issue directives should be reviewed and rationalized into fewer, well-defined directive authorities. Those directive authorities which remain should be exercised judiciously, and in a manner [that] does not compromise the continued independence of the OEB and its determinations from short term political influence."

A few stakeholders suggested that the OEB's independence could be strengthened by making it accountable to the legislature. This would allow any government direction to the regulator to be debated in an open and transparent forum.

A few stakeholders noted that the OEB's independence would be strengthened by enhancing the degree of transparency of communications between the government and the OEB.

One stakeholder suggested the current Memorandum of Understanding between the Minister of Energy and the OEB should be limited to administrative and financial matters, to strengthen the OEB's independence.

Policy Development

Several stakeholders proposed that the OEB independently review government policy direction prior to their adoption. The OEB would analyze and publicly report on potential impacts, including costs. A few other stakeholders suggested that the OEB convene and facilitate discussions among industry, government and stakeholders to inform government policy.

A few stakeholders suggested that, given the OEB's focus on the broader public interest, it should be contributing to the development of government policy.

"...the Board cannot be reduced simply to a "policy implementer" – regulating in the policy realm demands much more than that. And the Board's perspective should be taken into account in the setting of policy. Not to say that the OEB has decision rights on policy setting, but as subject matter expert in the area of regulation, it should be consulted and heard."

A few stakeholders suggested that the OEB should have oversight of the Ministry's Long Term Energy Plan.

A few stakeholders noted the important and useful contribution OEB staff make towards the government's policy development.

Regulatory Excellence and Benchmarking

Synopsis

Most stakeholders noted that the OEB would benefit from developing a more robust performance measurement plan with benchmarking, more meaningful key performance indicators (KPI), efficient processes, and enhanced regular public reporting.

Performance Benchmarking

Several stakeholders commented that the OEB should benchmark its performance against other regulators. Stakeholders further suggested that the benchmarking should cover measures for efficiency, cost and innovation.

"Just as the sector it regulates does, the Board should benchmark its performance against other regulatory agencies in North America. Trust and transparency are depicted as the most important feature of the Board's role, and this can only be strengthened through benchmarking and the measurement of specific performance measures against which to hold the Board accountable."

One stakeholder pointed out that the scorecards provided in the OEB's Annual Report state only whether tasks have been performed and do not track or measure outcomes or provide meaningful measures of performance.

Another stakeholder maintained that tracking specific measures such as "Days until Decision" would make the OEB's regulatory processes more transparent.

Key Performance Indicators

Most stakeholders who commented on this theme said that, in line with industry best practices, the OEB should be required to develop meaningful, outcome-based KPIs to assess its performance, and that the OEB should consult with stakeholders when developing its KPIs. A few stakeholders suggested that the KPIs could include measures such as "Days until Decision", "Cycle time", "Customer Outreach" and Stakeholder Experience".

"An example of an area where KPIs should be required is with respect to the processing of applications. There is currently no certainty as to when a decision will be issued relative to the filing of an application...This creates uncertainty for both utilities and ratepayers."

Several stakeholders also noted that the results of the OEB's annual performance scorecard should be audited or reviewed by the Auditor General. They further noted that OEB management should be held accountable for KPI achievement.

Efficient Processes

Most stakeholders who commented on this theme believe that the OEBs processes can be more timely and efficient.

"... research the collective regulatory burden of the sector, set targets to reduce it and require the OEB to streamline its regulatory instruments (guidance documents and regulatory codes) to ensure clarity, consistency and relevance ..."

Several stakeholders would like to see the regulator modify its annual requirements for reporting on expenditures and resources. One stakeholder said the OEB should phase out quarterly reporting, reduce duplicate regulatory filings, and develop a "short form" Cost of Service process.

Public Reporting

Several stakeholders noted that the OEB should itself adhere to the same standards it sets for regulated entities. To support transparency, the OEB should publicly release scorecards of how it is performing against established benchmarks.

"...[the] scorecard should be developed in consultation with government and industry stakeholders. As is the case with the Distributor Scorecard, it should be clear, concise and made available to the public."

Other suggestions brought forward by individual stakeholders included an annual review of the regulatory burden of the sector, the OEB conducting regular satisfaction surveys of stakeholders in the electricity and natural gas sectors, and tabling of the OEB's business plan in the legislature every year.

Resourcing

Synopsis

Stakeholders noted that the OEB should have an appropriate level of resources and expertise to enable it to deliver its mandate. There was consensus that funding the OEB from the rate base should be maintained. Several stakeholders proposed greater oversight and transparency in the way OEB develops its financial and human resource requirements, and for the cost assessments allocated to regulated entities.

Appropriate Resourcing

Most stakeholders who commented on this theme supported appropriate and reliable resourcing that allows the OEB to deliver on its mandate. A few suggested additional resources would support timely OEB decisions.

"The OEB is an important regulatory tribunal and critical in maintaining a viable Ontario energy sector, while ensuring the interests of energy consumers are sufficiently protected. The OEB should continue to be resourced in a way that allows it to undertake the role effectively."

There was strong support of the current OEB cost recovery model from the rate base.

"The current practice, under which all of the costs of the OEB are paid by the regulated entities continues to be the right approach. This result is that the customers, through their rates, pay the regulatory costs of the utilities, the customer groups and the regulator itself. This is appropriate as the customers are the primary beneficiaries of regulations."

However, a few stakeholders felt that some tax-based funding could be used to support undertakings outside the OEB's economic regulation mandate.

Greater Oversight and Transparency of Funding

A few stakeholders would like to see more transparency in the way OEB develops its priorities and resource needs.

"The former practice of public consultation on the OEB Business Plan should be reinstated. Utilities, customer groups, and other stakeholders are a significant resource, with lots of expertise and a broad range of perspectives. The OEB would benefit from more input from the sector, both during the development of the Business Plan, and when a draft is ready for review."

A few stakeholders advocated that funding received from cost assessments allocated to regulated entities should be subject to review and not be determined solely at OEB's discretion.

Panel Members

Richard Dicerni

Mr. Dicerni began his public service career in 1969 when he joined the federal government. Throughout the 1970s and 1980s, he held a number of executive positions in the federal public service including Deputy Secretary to the Cabinet and Senior Assistant Deputy Minister, Health and Welfare. He joined the Ontario Government in 1992 as Deputy Minister of Environment and Energy and was appointed Deputy Minister, Education and Training in 1995.

Mr. Dicerni served as acting President of Ontario Power Generation between 2003 and 2005.

He rejoined the Canadian Government in 2006, serving as Deputy Minister of Industry until 2012. He was named Deputy Minister of the Alberta Executive Council and Head of the Alberta Public Service in October 2014 and served until April 2016.

Richard Dicerni was appointed to the Order of Canada in December 2017.

Cara Clairman

Cara Clairman is founder, President, and Chief Executive Officer of Plug'n Drive, a non-profit that is accelerating the deployment of electric vehicles (EVs) to maximize their environmental and economic benefits. Plug'n Drive is recognized as a leader in the EV business.

Ms. Clairman has more than 20 years of experience working in the environmental and sustainability fields, including 12 years working at Ontario Power Generation (OPG), first as OPG's environmental lawyer and then as its Vice President of Sustainable Development. In this role, she was responsible for overseeing OPG's environmental performance and the development and implementation of OPG's sustainable development policies and programs.

Bruce Campbell

Bruce Campbell was President and Chief Executive Officer of Ontario's Independent Electricity System Operator (IESO) from May 2013 to June 2017. Mr. Campbell was instrumental in integrating Ontario's investment in distributed energy resources into the province's electricity system. Under his direction, the IESO introduced innovative technologies such as storage and actively pursued more competitive, cost-effective solutions to meet future power needs.

Mr. Campbell also served on the Member Representative Committee of the North American Electric Reliability Corporation (NERC) and on the Council of Independent System Operators and Regional Transmission Organizations which supports the delivery of sustainable and reliable electric power to millions of consumers across the continent.