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Canada | Publication | April 28, 2022
Ontario > British Columbia >
Alberta >
Canadian energy regulators are grappling with how best to respond to a rapidly evolving energy sector, resulting in some out-of-the-box approaches. The recent pace of change and burgeoning new technologies designed to address climate change pose a challenge for regulators, who must adjudicate requests to approve the cost consequences of innovation.
This challenge exists because under the long-standing energy regulatory framework, regulators must examine the costs incurred by utilities to serve their customers and, generally speaking, to pass on these costs only when they relate to prudent investments. Thorny questions can arise when regulators need to determine whether the costs associated with innovative services and products, which by their very nature may be new or untested, should be approved for inclusion in rates. In many cases such investments may eventually prove to have been useful, but inevitably some will not. Regulators must determine how to treat these costs and who should pay for less successful investments.
At the same time, regulators are being encouraged to be innovative in their own processes. The Canada Energy Regulator (formerly the National Energy Board) and the Ontario Energy Board (OEB) recently had their governance structures changed, in part to enable them to respond more nimbly to sectoral changes, and to innovate in their own processes. Similarly, in Alberta, recent legislative changes have prompted the Alberta Utilities Commission (AUC) to explore changes to its processes to enhance innovation within the province. These regulators are now faced with the triple challenge of fostering innovation in the sector, innovating themselves in the way they respond to accelerating change, and importantly, continuing to ensure they appropriately deliver on their basic statutory mandates to set just and reasonable rates.
This article looks at recent developments at the energy regulators in three Canadian provinces as they seek to address these issues within their respective regulatory regimes.
As noted above, like other regulators, until recently the OEB had not had to deal very often with proposals for innovative products or services where the proponent was seeking to rely on ratepayer funding. However, recently the number and importance of innovative proposals have been increasing. An enabling measure undertaken in Ontario in 2020 was an amendment to the Ontario Energy Board Act, 1998 that added a new objective “to facilitate innovation in the electricity sector.” This objective was an important addition to the governing statute, providing the OEB with the ability to consider the facilitation of innovation as a factor it takes into account as it balances its statutory objectives and creating a statutory anchor for increased consideration of proposed innovation in its decision making.
The importance of innovation is reflected in the OEB five year strategic plan:
The OEB facilitates innovation that can provide demonstrable value to Ontario’s energy consumers and solve energy challenges cost effectively. The OEB provides clear direction on when and how regulated utilities can recover costs for innovation-related activities from ratepayers, and for how risk is addressed. The OEB continually
evaluates which activities or emerging needs are better undertaken or addressed through competitive markets. .1
In 2019 the OEB established the Innovation Sandbox to address demand for regulatory flexibility and guidance for the sector and to breathe life into its efforts to deal with regulatory issues concerning the treatment of innovation. The Sandbox’s purpose was stated to be to “[p]rovide a venue for proponents to engage in candid conversations with OEB staff about innovative ideas,” “allow proponents to request temporary relief by way of a streamlined, simplified application process,” “[r]educe regulatory uncertainty and risk” and to give the OEB “insight into sector challenges and innovations.”2 The Sandbox was the first of its kind for energy issues in North America, and was in itself innovative. In its first few years of existence, it handled numerous inquiries.
However successful the Sandbox was in its first iteration, it did have some parameters dictated by nature of the OEB’s role and by the applicable legislative framework. Firstly, there was no funding source attached to the Sandbox, meaning there were no monies available to provide seed funding to pilot innovation. Secondly, for some of the proposals, the requested regulatory relief was not within the OEB’s jurisdiction. And lastly, some stakeholders expressed concerns that efforts to protect commercial confidentiality for proponents hampered transparency.
After two years, the OEB conducted a consultation on the sandbox, producing a report entitled Innovation Sandbox 2.0 in January of 2022. The report details changes to the Sandbox, including strategies to enhance Sandbox awareness and transparency, enhancements to the Sandbox website, including a new dashboard, improved annual reporting and increased outreach.3
Importantly, the report also stated that the OEB would explore opportunities for funding and exploration of partnership opportunities. In so doing it addressed a desire expressed by Ontario energy sector participants that the OEB seek insofar as possible to coordinate its activities with other energy sector agencies, and in particular with the Independent Electricity System Operator (IESO).
In 2021, the IESO and the OEB announced a targeted call for proposals for innovative Distributed Energy Resource (DER) projects that would provide both local and provincial solutions. As a result, in March of this year, several projects that demonstrate the positive effects of such coordination were announced. The OEB website announced the initiative as relating to “Four projects, representing a total investment of $37 million, [which] will accelerate the adoption of local energy projects to help communities play an increasing role in providing for their own energy needs.”4
The projects will be funded in part by the IESO ‘s Grid Innovation Fund, which has been set up to “[advance] innovative opportunities to achieve electricity bill savings for Ontario ratepayers by funding projects that either enable customers to better manage their energy consumption or that reduce the costs associated with maintaining reliable operation of the province’s grid.”5 The projects are community focused and all involve testing models for using distributed energy resources such as wind, solar and battery storage technology.
While the IESO Grid Innovation Fund will partially fund the projects, the OEB Innovation Sandbox will provide the necessary regulatory support to help facilitate innovation, in accordance with the statutory objective concerning the facilitation of innovation. This type of inter-agency coordination would appear to have the benefit of advancing energy innovation in Ontario, while maintaining and respecting the different roles of the OEB and the IESO.
In recent years, the British Columbia Utilities Commission (BCUC) has also been grappling with the appropriate regulatory approach to innovation in the utilities sector.
To date, the BCUC has effectively applied traditional rate-setting principles to address this issue. The BCUC’s ratemaking approach is illustrated, for instance, by its disparate treatment of “innovation fund” requests made by related natural gas and electric utilities, FortisBC Energy Inc. and FortisBC Inc.:
The BCUC has, moreover, shown that traditional economic regulation principles continue to have a place even in an evolving legislative landscape. In BC, legislation, including the Clean Energy Act8 and the associated Greenhouse Gas Reduction (Clean Energy) Regulation,9 exempts certain “prescribed undertakings” relating to decarbonization investments from “needs” reviews and requires the BCUC to allow utilities to recover costs incurred in pursuing these undertakings from ratepayers, but provides the BCUC with discretion to oversee how those undertakings are implemented and recovered from ratepayers.
Two recent examples demonstrate BCUC’s approach to reviewing these undertakings:
In Alberta, recent legislative changes have prompted the AUC to re-examine its processes. Alberta enacted the Red Tape Reduction Act in June 2019, in an effort to enhance economic growth and innovation in the province by reducing regulatory and administrative burdens.17 In response, the AUC appointed an independent “Procedures and Processes Review Committee” to recommend steps the AUC could take to streamline its adjudicative procedures.18
The AUC has since accepted most of the recommendations made in the committee’s August 2020 report.19 The main takeaway from the report was to recommend that the AUC develop an “overarching, assertive case management approach” that focuses proceedings on “the regulator’s information requirements and on procedural efficiency.”20 The AUC has since taken steps to implement corresponding changes to its processes and rules.21
The AUC recently held a roundtable to canvass the public’s experiences with these changes so far. The chair of the AUC noted that two main themes emerged: “continued support for the AUC’s efficiency agenda, and recognition that there remains room for further refinement and improvement.”22 The AUC reported broad stakeholder support for further reducing regulatory burden, including by making the negotiated settlement process more accessible, and stipulating reasonable limits on process steps.23
These changes are intended to allow the AUC to more nimbly respond to the evolving energy landscape in real time. Although there has been some recent discussion in Alberta about implementing a “sandbox” approach akin to the OEB’s24 , the focus thus far has been on ensuring regulation is streamlined so as to not impede the private sector.
This brief examination of three Canadian jurisdictions provides a snapshot of the regulatory treatment of innovative technologies in Canada. The British Columbia examples considered above illustrate regulators’ ability to examine these issues using a traditional rate-setting analysis, while the Ontario example points to the potential advantages to be gained from inter-agency cooperation through playing to the strengths of two of the province’s key energy agencies. In Alberta, on the other hand, the focus in recent years has been on ensuring public regulatory requirements do not unduly impede private innovation.
OEB Innovation Sandbox Overview, November 2020: PowerPoint Presentation (camput.org) at p. 4.
Grid Innovation Fund, Overview (ieso.ca).
AUC Bulletin 2020-33: Process improvements to AUC rate proceedings (October 22, 2020).
Report of the AUC Procedures and Processes Review Committee, August 14, 2020, Executive Summary at p. 2.
See, for instance, AUC Bulletin 2021-10: Amendments to AUC Rule 001 (May 3, 2021).
Publication
The 2023/24 Premier League season was unusual in recent times in that events off the pitch seemed to almost take up as many column inches as the football.
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