The Right Stuff? The Role of the OEB in Ontario’s Energy Transition‍

The Ontario Energy Board’s (OEB) Energy [X] Change Committee is an advisory committee (established in 2021) of rate regulated utilities, non-utility providers and consumer stakeholders.

The Committee’s most recent November 26, 2024 meeting featured a Roundtable Discussion focussed on the following questions:

1. Ontario’s Affordable Energy Future: The Pressing Case for More Power calls for the IESO and OEB to be growth oriented. What does a growth-oriented OEB look like to you? What are the opportunities and challenges associated with regulation that has an increased economic development focus? How do we share risk appropriately between supporting economic development and increasing costs to customers? How should these objectives be balanced?
2. Enabling system expansion and ensuring energy affordability may give rise to trade-offs. How do we balance these two visions for Ontario's energy customers?
3. What role should the OEB play in energy efficiency and demand-side management, if any, over and above work being done on DERs and Non-Wire Solutions?
4. From housing to regional planning, a common theme in Ontario’s Affordable Energy Future: The Pressing Case for More Power was the need for information sharing. What information does your organization need? What role, if any, could the OEB play to facilitate that information sharing?
5. How might the government’s vision and the trade-offs discussed today affect your financial risk profile, performance, and ability to raise capital?

According to the Committee’s terms of reference meetings are conducted under “Chatham House rules to facilitate forthright and constructive dialogue among members.” The OEB posts meeting materials (e.g., agendas and presentations), but does not publish meeting notes (the OEB’s Adjudicative Modernization Committee does publish meeting discussion notes). The meetings of the Energy [X] Change Committee are not open to public. Only individuals invited to participate or speak in Committee meetings by the OEB are permitted to attend.‍

Commentary‍‍

The New Energy Policy Context‍

It is of little surprise that the OEB discussed Ontario’s new Energy Vision with the Energy [X] Change Committee. The Energy Vision document is broad in scope and ambition, reinforcing key “pro-growth” themes of the government’s approach to energy policy: economic development, affordability, and becoming a clean energy exporter. The document features many priorities referencing the OEB directly:

1. The OEB will need to consider outputs from planning in its adjudication and other regulatory activities.
2. The OEB should continue to play its role as the natural gas system’s economic regulator to protect consumers, to ensure utilities can invest in their systems and earn a fair return, and to enable the rational expansion and maintenance of the system.
3. There is a need for Ontario to work with the IESO, the OEB, Indigenous communities and stakeholders to continue to improve the Regional Planning Process so it supports coordination with natural gas planning, supports high growth regions and appropriately integrates municipal energy plans.
4. The OEB should continue to seek opportunities to improve the efficiency of its independent adjudication and make greater use of non-adjudicative tools in regulating the sector.
5. There are opportunities to examine broader implementation of projects piloted by OEB and IESO that have demonstrated customer, local and system benefits.
6. There is an opportunity to improve collection and sharing of DER data to the mutual benefit of LDCs, the OEB, the IESO, customers and DER developers.
7. Ontario recognizes the need to work with the OEB to provide greater clarity and predictability to LDCs so that they can modernize their infrastructure to provide the energy and services that ratepayers need into the future.
8. There are opportunities for the government, IESO and the OEB to accelerate implementation of grid innovation projects that provide ratepayer value.

Further, the government passed Bill 214, Affordable Energy Act, 2024 (which received Royal Assent on December 4, 2024) that made amendments to theElectricity Act, 1998and Ontario Energy Board Act, 1998 that align with priorities in the Energy Vision and includes providing the government with regulation-making authority to decide cost responsibility (i.e., cost allocation and recovery) for transmission and distribution connection infrastructure “to enable more timely development of connection infrastructure to enhance system readiness for industrial and housing development and electrification” by amending the OEB’s Transmission System Code and Distribution System Code.

Also, earlier in 2024, the government passed Bill 165 (the Keeping Energy Costs Down Act), which gave the Minister the authority to issue directives requiring the OEB to hold a generic hearing to determine any matter respecting natural gas or electricity.

Through these actions the government has signaled that it is prepared to actively remove and/or direct the OEB to investigate regulatory policy barriers that conflict with the province’s broader energy and economic development goals.‍

How Can the OEB Adjust?‍

The new energy policy context in Ontario poses significant challenges to the OEB in how it interacts with and regulates the sector. The priorities laid out in the Energy Vision touch upon all aspects of the OEB’s roles (e.g., consultative, rate-setting, regulatory policy, providing data, and regional planning).

To keep pace with the government’s expectations for energy sector change and expansion as well as economic development objectives, the OEB needs to provide clear direction to regulated entities and sector stakeholders. This requires the OEB to reconsider its current approach to engaging the sector. The government is taking a new holistic vision for the future of the Ontario’s energy sector and will publish an Integrated System Plan in early 2025. The OEB’s vision for regulating the sector should take a similarly broad view of its role in this future.

This regulatory vision should be developed in an open (i.e., public), inclusive, participatory, and transparent way.

For example, formally structured generic proceedings may offer the most robust option for exploring and deciding many regulatory issues related to the far-reaching (disruptive) impact of the energy transition across regulated natural gas and electric entities as well as their customers, requiring broad stakeholder participation. Further, it has been suggested that to ensure transparency and alignment between regulatory decisions and government policy that regulators should “give relevant government agencies adequate notice of any aspect of a proposed hearing that raised the possibility of conflict with government policy. There is no reason why government agencies cannot intervene in regulatory hearings.”

There are many other options available to the OEB to incorporate the new energy policy context into its work along with enhancing stakeholder engagement, for example, the OEB could:

• revive its previous practice of issuing a draft business plan for stakeholder comment;
• adopt the practice of Ofgem, the United Kingdom’s regulator, of consulting on a draft Forward Work Programme, which sets out “the key new reform projects” (excluding routine regulatory actions) it intends pursue for the following year;
• provide stakeholders with updates about the OEB’s participation on, and learnings from, the Regulatory Energy Transition Accelerator (RETA);
• make meetings of the Energy [X] Change Committee open to all stakeholders, similar to the IESO’s Strategic Advisory Committee;
• refresh and revise the OEB’s Strategic Plan (issued in 2021) with stakeholder participation to ensure alignment with the government’s Energy Vision; and,
• make greater use of staff discussion papers/proposals regarding regulatory policy and process issues related to the energy transition; for example, in 2016, Ofgem launched the Insights for Future Regulation (IFR) initiative to “to understand which drivers of energy system change have the greatest potential impact on consumers and regulation.” The IFR produced 5 papers, covering topics including the decarbonization of heat, local energy systems, and transition to electric vehicles.

Conclusions‍

Power Advisory has noted previously that the energy transition is creating an (increasing) tension between government’s desire to meet infrastructure expansion and economic development goals and the regulator’s role in cost oversight and independence. This tension is exacerbated by traditional responses by regulators to change, which are typically viewed as slow (i.e., incrementalist), ad hoc approaches rather than undertaking more comprehensive, fundamental reforms. This challenge will be a primary feature of the large-scale (and expensive) infrastructure challenge posed to the energy sector (and other sectors of the economy) as part of the energy transition, such as widespread electrification.

In closing, the energy transition is being driven by interventionist government policy decisions, requiring regulators, like the OEB, to adjust to this reality by proactively taking a leadership role in investigating and advancing change or risk falling behind and having solutions imposed upon them.

Please contact Power Advisory if you have any questions or would like any additional information.