Wonderful Report on Electricity Sector Governance in Canada

The Council for Clean and Reliable Electricity, The Richard Ivey School of Business and the Waterloo Institute for Sustainable Energy recently issued a valuable, insightful report authored by Professor Guy Holburn called “Guidelines for Governance of the Electricity Sector in Canada”.

Arising from concerns about the governance of regulatory agencies and boards, and of Crown corporations, the report makes a series of recommendations to improve the performance of Crown corporations in the electricity sector as well as the business climate for investment in new power generation, distribution and transmission assets. The report points to the rising complexity of utility policy and governance driven by the increasing tension between consumer and environmental objectives, and technological challenges such as grid integration of intermittent renewable generators and smart grid technologies.

The report has a welcome national scope, especially considering recent developments. In Ontario, the heads of key electricity agencies have seen their independence downgraded to deputy minister status in a snow storm of rash policy directives issued by headline-driven energy ministers and the Premier’s Office. In British Columbia, the government has tightened its grip of the electricity sector by merging once unbundled transmission and generation utilities. In New Brunswick, the government has committed to an ill-considered artificial rate electricity freeze.

Holburn’s report is an outstanding contribution to the public debate, particularly his recommendations for strengthening the independence of public utility regulators. He warns that non-credible regulation “can lead to government ownership becoming the default mode of operation, as has been the case in many developing countries”. A principle recommendation is that agency independence should be enshrined in legislation.

One aspect of the recommendations I think should be strengthened is with respect to the tenure of heads of agencies. The report recommends that agency board members should have security of tenure unless dismissed for cause. Learning for the firing of the former head of the Canadian Nuclear Safety Commission, Linda Keen, this positive recommendation should be specifically extended to the heads of agencies. Secure tenure will improve the ability of agencies to promote the public interest by being reliable sources of information and analysis.

There is a limit to how much stability and wisdom we ought to expect from governance reforms. Making agencies report to their respective legislatures is a positive but limited recommendation. One example is the lack of critical analysis from the Environmental Commissioner of Ontario – who does report to the legislature — with respect to the Green Energy Act.

In the near term, the biggest governance challenge in the Canadian power sector is the clash of visions between the goal of efficiency and the goal of green economic transformation. Government-owned and privately-owned utilities are all caught up in this destiny issue.

In the long run, a more successful approach to ensuring good governance of electric utilities is to follow the model of most of the gas utility sector in Canada. The gas utilities in Canada are typically privately owned and publicly regulated. The owners have a keen interest in independent, fair regulation. Politics plays a limited role. Where politics creep into gas regulation, such as New Brunswick government’s disastrous industrial laterals policy of the late 1990s, the damage to consumers is obvious.