Ontario Electricity Regulation Crisis Report – Part 49: Utility/Regulator Rotating Door

Last week, Toronto Hydro issued an internal memo to employees announcing the appointment of long-time Ontario Energy Board member Paul Sommerville as the utility’s new Vice President, Regulatory Affairs and General Counsel effective September 10, 2012.

This latest appointment reflects a continuation of the rotating door trend initiated by the appointment of Rosemarie Leclair who moved directly from her position as President and CEO of the Hydro Ottawa Group of Companies to take over as chair and CEO of the Ontario Energy Board on April 6, 2011.

Other recent examples that give rise to concerns about a rotating utility/regulator door at the highest levels include the appointments to the OEB of long-time utility legal counsel Jerry Farrell and Dr. Emad Elsayed, a long time executive of the regulated generator OPG and recently a consultant to an association of Ontario’s regulated utilities.

Ms. Leclair appears to have approved Mr. Sommerville’s transfer to his new responsibilities. Section 2.5.1 of the OEB’s Addendum to its Code of Conduct stipulates that “Except with the prior written authorization of the Chair, none of the persons described below in this section shall deal with the Board, or any Member or employee on behalf of any person, whether in the course of an application, a proceeding, a policy initiative, or informally, during the period set out below commencing on the date that the person ceases to be a full-time Member or
employee. Subsection (a) for 2.5.1 indicates that in the case of a former full-time Member, this requirement extends for one year.

No notice to the public has been provided by the OEB acknowledging that Mr. Sommerville is working two jobs, supposedly protecting the public interest at the OEB while promoting the corporate interests of Toronto Hydro. As of the time of this posting, Mr. Sommerville is still identified as a full time member of the Board by the OEB.

Mr. Sommerville directly adjudicated several decisions on Toronto Hydro last year, including one regarding conservation program administration and funding. Does Mr. Sommerville’s move to Toronto Hydro signal the utility’s satisfaction with those decisions?

Toronto Hydro has been struggling with a regulatory crisis arising from the Board’s January 5, 2012 decision to curtail the utility’s unpredictable and rapidly expanding capital spending program. The utility’s proposal, declined by the regulator, would have increased residential distribution rates by over 40%. This crisis is documented throughout this “Ontario Electricity Regulation Crisis Report” series.

During this crisis Toronto Hydro issued a harsh criticism of the Board, accusing it of risking public safety. Addressing its comments to the entire Board, Toronto Hydro stated that its January 5th decision would “result in deteriorating service, an increase in power outages, an increased risk to public safety…”.

Toronto Hydro’s strategy of retaining an executive of an agency it so recently identified as a threat to public safety specifically to influence future regulatory outcomes illustrates how a non-arms length relationship between regulator and regulatees has overtaken Ontario’s electricity sector.

Paul Sommerville’s employment shift shows that rotations of senior positions between the regulator and regulatees are now treated as interdivisional transfers, lateral moves within an overall business family. No binding concepts of conflict of interest constrain these moves, much less any orientation toward the protection of the public interest.

9 Comments

  1. I have been asked twice to clarify what have been described as implications in the above post.

    The issue here is not Paul Sommerville’s personal views or his noteworthy professional achievements. The issue here is the now expanding practice of rotating executives between regulator and regulatee. Until this development with Mr. Sommerville joining the executive team at Toronto Hydro, the rotating door worked in one direction — which is bad enough. With this new precedent, the rotating door works in two directions. Mr. Sommerville’s executive transfer, and everyone who has facilitated it, has fundamentally weakened public utility regulation in Ontario.

  2. Are you suggesting that Board members are likely to go easy on utilities in hope that after there tenure is up they will get a job with them? I guess that is possible. But Paul Summerville is not the example of that. He has been very harsh on Toronto Hydro in the past including in the conservation decision you reference.

    • The Ontario Energy Board routinely deals with issues where hundreds of millions and even billions of ratepayer dollars are at stake. The strength of the regulatory process cannot hang on the good graces of individuals, no matter how well intentioned. Getting squishy with conflict of interest rules will ultimately harm the public interest.

  3. The same issue “conflict of interest”; seems to have been ignored by the OPA as well with Chee-Aloy moving to the private sector and now pushing for approvals on contracts he may have been involved with negotiating while with the OPA. The conflict issue appears to have little meaningful worth within the Ontario pubically owned electricity sector. One wonders how the conflict rules are applied in the other provincial sectors!

  4. I continue to receive correspondence on this post, most of it disagreeing strongly with my position on Sommerville’s move. One particularly astute observation was a criticism of my observation that the rotating door started with Leclair switching chairs from Hydro Ottawa to the OEB. The counter example offered noted that former Board members Paul Vlahos and Bob Betts quickly moved to advise utilities on regulatory strategy after leaving the Board.

    Without commenting on whether Vlahos or Betts complied with the conflict rules that existed at the time, I see a distinction between consulting to utilities and taking an executive position as VP Regulatory. More importantly, all of these examples raise concerns that the OEB’s conflict rules are badly broken.

    Parker makes an important point about the same disease infecting the OPA. Parker has published very extensive and well documented research mapping the webs of deeply conflicted and publicly funded power policy entrepreneurs including Bruce Lourie, Rick Smith, Deb Doncaster, Chris Stevens, and Marion Fraser. Here is another recent example of outstanding work by Parker: http://www.freewco.blogspot.ca/2012/08/the-green-energy-economy-act-examining.html#more

    I have commented previously about the problems of conflict at the OPA. One example I addressed was John Beck, former chair of the OPA, also chairing AECON Construction at the same time and doing big business on key power plays, such as the Mattagami redevelopment.

    The institutional foundation of Ontario’s power system is rotting, with the active decay feeding on ratepayer dollars of tomorrow.

    Ontario household power costs at about this time next year will be the highest of any state or provincial jurisdiction in North America with the possible exception of PEI. The pace of rate increases will then accelerate in 2014 and 2015.

  5. It is interesting that Toronto Hydro would hire an OEB member, probably at a big pay raise, after its extreme criticism of the Board last winter. I wonder how Paul Sommerville managed to satisfy TH’s dire concerns about the Board’s reckless decisions threatening public safety and such. Did he disavow the OEB during his job interview ? If TH considers the OEB a serious threat to consumers, their property and safety, how would hiring away one of their presumably more sensible members improve matters ?

    It seems that we can’t expect independent, honest regulation of monopoly utilities in Ontario anymore. Our first hint should have been when the Chair spoke to electricity companies like she was their marketing director, emphasizing how they could all smooth price increases to avoid “rate shock” and that they should all tell happy stories about Ontario’s legacy to confuse ratepayers. So much for just and reasonable rates.

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