What Can We Learn from Energy Regulatory Innovation? Case Studies of Formal Regulatory Agreements and Public Engagement Processes

Strengthening public confidence in Canada’s public authorities is no easy task, but the need has never been clearer. Rapid social and policy change demand it. Clearly articulating the roles and responsibilities between and among regulatory actors is one of the most pivotal but understudied factors shaping Canada’s ability to successfully chart its energy and greenhouse gas emissions future. Regulators must modernize and reinvent the ways they engage with stakeholders and policymakers alike. This is easier said than done, but there is a growing body of examples in the Canadian context that regulators can draw and learn from.

Collaborative research project between Positive Energy and CAMPUT

The findings from a collaborative research project between the University of Ottawa’s Positive Energy program and the non-profit association of Canada’s Energy and Utility Regulators (CAMPUT) has identified several successful innovations and opportunities to scale up innovations in energy regulatory decision-making. Through this project, energy regulators across Canada are supported through improved understanding of shared challenges and opportunities and suggested actions to enhance policymaker-regulator relationships and public engagement approaches.

In a December article for ERQ, we reported on the first phase of this research: findings from an online survey targeting people who work for or with regulators and focused on the drivers of regulatory innovation[1]. Among respondents, 50 per cent said evolving social and environmental goals or values are driving the need for regulatory innovation; 42 per cent said the need for operational decision-making efficiency; 42 per cent identified economic interests; 34 per cent said rapid technological change; 34 per cent said demands for enhanced communication and stakeholder engagement; and 22 per cent said concerns for democratic relationships.

In this article, we are going to dive into the second phase of the project: detailed case studies of specific regulatory innovations. These in-depth, qualitative case studies included background document analysis and semi-structured telephone interviews in late 2020. Interviewees represented organizations that created, implemented, use, or are affected by various regulatory innovations. Questions considered benefits and barriers for the innovation, intended and unintended consequences, as well as key success factors for process and outcomes.

Case #1: Quasi-judicial regulators’ use of formal agreements

The first case examined two-way interactions by keying in on five formal agreements implemented in provincial and federal jurisdictions. A good relationship pre-existed each formal agreement, with parties well aware of the rules of engagement and how to work together. The agreements examined include:

  • The Memorandum of Understanding between the British Columbia Ministry of Energy, Mines and Petroleum Resources (MEMPR) and the British Columbia Oil and Gas Commission (BCOGC)
  • Roles and Responsibilities of Alberta Environment and Parks (AEP) and the Alberta Utilities Commission (AUC) Re: Applications to construct and operate wind and solar power plants
  • Federal Major Project Management Agreements, using the case of the National Energy Board (NEB) and the Major Projects Management Office (MPMO)
  • The Memorandum of Understanding concerning Integrated Impact Assessments under the Impact Assessment Act between the Impact Assessment Agency of Canada (IAAC) and the Canada Energy Regulator (CER)
  • Terms of Reference for Ongoing Engagement between an Indigenous government and the Canadian Nuclear Safety Commission[2]

By definition, when parties negotiate an agreement, this creates an opportunity to discuss and confirm roles and responsibilities to the mutual benefit of all involved. The agreement itself provides the added benefit of regular opportunities for both groups to discuss a range of issues: from communication protocols to public policy initiatives. Working through the nuances of interactions proactively, rather than waiting for tensions to arise under decision-making timeline constraints, is also beneficial for proponents and other stakeholders, especially in the project context, because the rules, boundaries, and interactions are known prior to an application and review process getting underway.

We identified four clear benefits in the negotiation and use of the agreements: the demonstrated commitment and understanding of the parties; development of mutual assistance and support mechanisms; improved communication; and greater attention to stakeholder interests.

Benefits of formal agreements

The development and implementation of a formal agreement between a quasi-judicial regulator and policymaker provides opportunities for both organizations to demonstrate an ongoing commitment to engagement, relationship building, and working together in comparison to ad hoc approaches. As one interviewee put it, “The rigour of an agreement puts attention and value on relationship building.” Our findings suggest that the benefit of the agreement development process is arguably as important as the outcome. A formal agreement creates clarity and certainty for respective roles and responsibilities, while internal consultation processes provide an opportunity to highlight to staff the structures and responsibilities of the working relationship. Formal bilateral negotiations raise awareness and understanding for how two organizations, with two cultures, will work together.

An agreement also creates the opportunity for mutual assistance. Creating an agreement permits both parties to highlight their respective needs and expectations, ensuring the two organizations are on the same page with respect to principles and objectives. For project-based agreements, parties can work out details for regulatory requirements under different pieces of legislation. This could include full lifecycle integration, from pre-application, to construction and monitoring, with enforcement also potentially facilitated. This can reduce duplication, particularly when an overarching agreement is in place instead of one-off arrangements.

A key aspect of formal agreements is the crystallization of expectations for communications, which supports a ‘No surprises’ approach for internal day-to-day activities. In the short and long term, regular contact at all levels results in earlier discussions and problem solving. Interviewees further pointed out that an agreement can help avoid difficulties and pitfalls with new staff appointments because timelines and expectations are clear. The agreement can also ensure the policymaker and regulator to move along the ‘interaction’ continuum sooner — from basic information sharing and coordination to discussions of more substantive policy issues.

Lastly, agreements can clarify stakeholder interests, which is always of concern to proponents and stakeholders alike. A formal agreement can outline the criteria, related deliverables, and timelines for responsible authorities to follow during a project review. Where public authority roles and responsibilities are made known in an open and transparent manner, evolution in these matters can be followed, endorsed, or debated by stakeholder groups. A related benefit concerns multi-agency interactions with the same stakeholder groups. As engagement proceeds, parties can inform each other, with a potential positive effect on stakeholder relationships if both authorities demonstrate an equal commitment to transparency and building trust through engagement processes.

Barriers to effective policymaker-regulator agreements

Our findings suggest that the barriers to effective agreement development and implementation originate in two areas. The first relates to organizational leadership. The second focuses on discrepancies in priorities, capacity, and resources between the two organizations.

It is important for senior leaders entering into a formal agreement to demonstrate an interest in its development or renewal, and then following through. If negotiations start at the working level, senior executives may be less engaged in the early phases. In these instances, questions may arise concerning the commitment to collaboration. A second concern deals with the relations at all levels of the organizations. People build relationships. When staff changes at any level, implementation can be negatively affected because relationship building must begin anew. Senior leadership in both parties can help to address this concern with regular review and evaluation of agreements, incorporating input from all departments.

Key success factors that help realize benefits and address barriers are within the control of each party to a negotiation. First is the role of senior leadership in signalling commitment to the agreement. The prior experience and length of tenure among key staff and, in turn, the participation and buy-in of all departments are crucial. So are efforts to adhere to schedules and commitment, and adequate funding and resources to support implementation.

Additional success factors include mutually signalling the importance and commitment to the agreement, both to each other and within their own organizations; common intention and goal setting; clarity and understanding for what is important to each party; demonstrated flexibility and respect; and clarity of roles and responsibilities.

Case #2: Regulators’ public engagement regarding distributed energy resources

The second case study focused on public engagement processes related to distributed energy resources in two jurisdictions: the recently completed AUC hearings-based Distribution System Inquiry and the ongoing OEB consultation process, Responding to Distributed Energy Resources.

Results from this analysis illustrate trade-offs in engagement:

  • The benefit of open processes vs. greater uncertainty and longer timelines
  • The benefit of taking a systems-based perspective vs. reduced clarity for the purpose of the process
  • The benefit of having diverse participants vs. discrepancies in their capacity and resources

Findings from the interviews suggest key success factors that could address these trade-offs, some of which are being implemented by one or both regulatory bodies and all of which could be considered by the regulatory community.

We identified the following options to strengthen engagement processes: provide a vision and an objective for the engagement; provide a “process roadmap,” schedule and timelines in advance while keeping some room for flexibility; coordinate with other public authorities engaged in the same issue; use a third party facilitator with process expertise (more so than content); let stakeholders speak and hear each other directly; and leverage stakeholder expertise and connections to broaden reach.

We also identified key actions to strengthen engagement content: start with the viewpoint of the customer/consumer; provide explicit opportunities to talk about benefits, not just risks and costs; encourage openness and transparency; and link engagement with what is evolving in other policy or regulatory processes. This latter issue concerns the challenge of concurrent engagement processes related to the same issue, some of which were being completed by more than one provincial regulator. Participants suggested that better interaction would increase the potential for coherent outcomes.

With respect to participant representation, the research underscored the importance of ensuring stakeholder inclusivity and diversity. This includes utility, customer, non-government organizations, and, importantly, the associated policymaking authority. After all, some innovations need to be integrated into the regulatory framework developed by policymakers. For this reason, it can be beneficial to invite policymakers to a consultation in order to build mutual understanding of how the stakeholder discussions unfold. Of course this needs to be done in a way that respects the independence and autonomy of the regulator. It is also important to provide opportunity for consensus building amongst participants, such that stakeholders begin to bridge historic differences. Adequate funding, including helping to support organizational capacity, is also key.

Lastly, with respect to reporting, success stems from identifying areas with more or less agreement among participants; demonstrating how information garnered in the engagement was used (or not) in reaching conclusions; and providing clear agendas and timelines for next steps.

What Works? Questions Regulators Might Ask Themselves

Based on these benefits, barriers, trade-offs, and success factors, the research identifies a set of questions regulators might ask themselves during a planning process or review of innovative practices in the two issue areas studied. Presented as a tool, the questions may be reviewed and enhanced to suit a regulator’s needs. Questions related to formal agreements include:

  • Have we signalled a commitment to work together?
  • If so, do we have a formal agreement in hand?
  • If not, are we paying adequate attention to the relationship?
  • If not, to what extent might a formal agreement address current challenges in the relationship?

And with respect to regulators’ public engagement:

  • Can concurrent public engagement processes, including those involving multiple authorities, be better coordinated or aligned?
  • Does the legislative framework prescribe the approach to regulators’ public engagement or are there additional options to investigate?
  • Are we using workshops to kickoff events? If so, are they facilitated by third parties?
  • Do we evaluate the engagement process? Do others?

The results of our study point to further research opportunities, including: considering whether success factors are similar in other jurisdictions or contexts, for example, under a federal-provincial formal agreement or engagement process; identifying the frequency and reasons why some stakeholders, most notably Indigenous groups, are sometimes missing from public engagement processes, as well as identifying ways to address this. Moreover, there may be ways to incorporate the views of non-government participants into decision-making on a more regular basis.

We uncovered other areas that merit further exploration. For instance, our exchanges with numerous Canadian regulators did not identify many formal instances of program or project evaluation for engagement processes or policy-regulatory interaction. The proposed series of questions could be integrated into new and existing evaluations. As well, research could identify criteria or performance metrics that can be used to measure progress, including impacts on process efficiency and effectiveness of decision-making outcomes.

A Final Word

Over the past five years, Positive Energy has identified two key principles that regulators should consider when innovating. The first is “informed reform.” Energy decision-making is an ever-changing, organic system of numerous component parts operating within market-based, regulatory, and physical energy systems. Innovations in energy decision-making that do not carefully consider both the short and long-term, or decisions that do not account for intended and unintended consequences, are likely to fail. Second, innovations must strike a “durable balance” between economic, environmental, social and security imperatives that stands the test of time. These imperatives often entail trade-offs and working to align diverse objectives. Innovations must achieve a durable balance or they are likely to fail.

These research results can help regulators and policymakers alike harness the power of these concepts by building improved understanding of shared challenges and opportunities. Progress towards informed reform and durable balance could include incorporating these concepts into strategic plans, results frameworks, and annual reports.

The path forward for Canada’s current and emerging energy and climate imperatives will be paved in part by innovation in the policy-regulatory nexus. We hope that decision-makers can use and build upon the successful innovations highlighted in this study and scale them across the country. This will help to strengthen public confidence in decision-making about Canada’s energy future.

For more information on the study click here.

* Dr. Patricia Larkin is Senior Research Associate at the University of Ottawa’s Positive Energy program.

  1. See Patricia Larkin & Brendan Frank, “What Drives Energy Regulatory Innovation? An Online Survey from Positive Energy and CAMPUT” (2020) 8:4 Energy Regulation Q 48.
  2. We recognize that the Terms of Reference between an Indigenous government and the CNSC is not a policymaker-regulator agreement because Indigenous groups are not the CNSC’s associated public authority. However, this formal agreement is an example of a regulator entering into a longer-term agreement to foster long-term relationship building and clarity in roles and responsibilities, as compared with ad hoc engagement during a consultation or project application.

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