What Drives Energy Regulatory Innovation? An Online Survey from Positive Energy and CAMPUT

To successfully chart Canada’s energy future in an age of climate change, it is crucial to strengthen public confidence in the roles and responsibilities of our public authorities. The context in which these authorities operate is highly dynamic. Innovations will be essential both to catch up and keep up with the pace of change. Energy regulators are facing multiple challenges: technological transformation in the upstream production, delivery, and end use of energy; an expanding range of stakeholder groups requesting a seat at the table; operational emphasis on risk-based regulatory delivery; and growing policy uncertainty. To deal with these realities, regulators must modernize and reinvent the ways they engage with stakeholders and with policymakers.

Collaborative research project between Positive Energy and CAMPUT

A new collaborative research project between the University of Ottawa’s Positive Energy program[1] and Canada’s Energy and Utility Regulators (CAMPUT) seeks to identify successful innovations and opportunities to scale these up in energy regulatory decision-making. Through this project, we hope to support energy regulators across Canada by improving understanding of shared challenges and opportunities and suggesting actions to enhance policymaker-regulator relationships and public engagement approaches.

This project seeks to answer two key questions. First, what is the nature of two-way interactions between policymakers and regulators, and what mechanisms can strengthen policy and regulation while maintaining regulatory independence? Second, what types of public engagement processes can help regulators ensure diversity in information and viewpoints considered in regulatory development, application processes, and oversight? In this article, we report on the first phase of the research: findings from an online survey completed in June 2020 that focused on drivers of regulatory innovation. The next phase of the project involves detailed case studies of innovations.

June 2020 Survey Results

To understand what regulators and the groups they engage with think about the state of regulatory innovation, Positive Energy and CAMPUT co-designed and administered an original survey to over 160 representatives from a diversity of organizations, including regulators, utilities, environmental and other non-government organizations, large and small customers, policymaking authorities, Indigenous organizations, law firms and universities.

We received 50 responses from a broad cross-section of regulatory players and observers. Seventy-eight per cent of respondents indicated the emphasis of their work is at the provincial level (Ontario, Nova Scotia and British Columbia were the most represented provinces) and 51 per cent said their work is primarily focused on rate regulation. The remaining respondents came from a variety of backgrounds, including safety regulation, rate and infrastructure regulation, non-government organizations, municipal utilities, or executive training. Participants noted that they serve a variety of different sectors in their work: some focus on publicly-owned utilities, regulatory agencies, or policymakers (17 per cent each), 12 per cent serve the private sector, and a quarter of respondents serve a combination of these options.

Our results reveal broad agreement on the need for innovation in regulatory decision-making, both for regulator-policymaker interactions and for public engagement. Although 88 per cent of survey participants saw the need for innovation in these areas, fewer reported actually observing them in their day-to-day work: 40 per cent for policy-regulatory interactions and 70 per cent for public engagement.

In this article, we analyze results for participants as a whole, as well as for different geographic or stakeholder groups. The “East” includes participants from Atlantic Canada (there were no respondents from Newfoundland and Labrador); the “West” includes those working in Manitoba, Saskatchewan, Alberta, British Columbia and the Northwest Territories. Ontario and Quebec are identified individually. Additional findings reflect “regulatory” and “non-regulatory” respondents.

What macrotrends are creating the need for innovations in energy regulation? The overarching answer respondents identified is the need to make decisions in a rapidly evolving social and environmental context. We asked participants to the relative importance of seven drivers for innovation in energy regulatory decision-making in recent years. Figure 1 shows our overall findings for all drivers. Asked to describe which drivers are “very important,” 50 per cent said evolving social and environmental goals or values; 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. With the option to add additional drivers, 8 per cent of participants identified the need to address interjurisdictional alignment and cooperation.

Figure 1: Relative importance of broad drivers of regulatory innovation

We observed importance differences on the relative importance of drivers across different sectors. For example, non-regulators identified economic and market interests as the most important driver of regulatory innovation, while regulators described it as the least important. Conversely, regulators identified demands for enhanced communication and stakeholder engagement as the most important driver, compared with non-regulator participants who ranked it fifth.

Differences in opinion across regions on the broad drivers of regulatory innovation are subtler. A greater number of participants from the West described evolving social and environmental goals as “very important”, more so than any other driver, while respondents from the East and Ontario said this driver is of roughly equal importance to rapid technological change.

There is broad agreement across regions and sectors that the need for operational efficiency is a driver of innovation. It emerged as the second most important driver for participants as a whole, and also across regions and sectors. On the other hand, concern for democratic relationships is also of lower relative importance at the national, sectoral and regional levels.

We turn now to the first of our two research questions: drivers of innovation in two-way interactions between regulators and associated policymaking authorities (Figure 2). The driver most often cited as “very important” was the need for clear articulation of policy goals that drive regulation (74 per cent of respondents noted it was “very important”).

Figure 2: Relative importance of drivers for innovation between regulators and associated policymaking authorities

The second most important driver (65 per cent said “very important”) was regulatory independence. Not surprisingly, participants who self-identified as regulators said this driver was the most important. The third most important driver (59 per cent) was competing policy and regulatory imperatives (e.g., market, environment, Indigenous, security, affordability concerns). This factor was cited less often among respondents from Ontario and Quebec, particularly when compared to Eastern participants.

Again, we note interesting differences in opinion between regulators and non-regulators, with smaller differences across regions. For example, a lack of shared understanding of the respective roles of policymakers and regulators was very important to non-regulators, but less important for regulators. On the other hand, regulators were more likely than non-regulators to say that the need for more interaction between policymakers and regulators was an important driver. The area of least concern among all respondents was political accountability in regulatory processes or outcomes. Ontario was an outlier in this regard, with respondents identifying this as the third most important driver.

We also asked survey participants for examples of useful innovations in policymaker-regulator interactions that help advance any number of objectives — informing public policy, facilitating general knowledge exchange, or helping build relationships. Responses included regulators’ formal ad hoc reviews and assessments of legislative proposals; the use of ministerial directives or memoranda of understanding between government departments and the regulator; active adjudication; and single-window regulatory institutional design. Other initiatives include efforts to attend non-government and industry forums or workshops focused on specific project proposals; briefings and board member outreach; and open and transparent hearings. While these suggestions may seem somewhat obvious, the challenge lies is operationalizing them and turning them into habits. Recall that far more respondents agreed on the need for regulatory innovation, but significantly fewer respondents reported seeing innovation in their day-to-day work.

The final section of the survey asked participants about the relative importance of 11 drivers for our second research question: regulators’ innovation in public engagement. Reconciling the need for public confidence and accessibility with effective decision-making appears to be the heart of the issue. As Figure 3 shows, when asked which drivers were “very important” for innovation in public engagement, 61 per cent of respondents said public trust in energy decision-making; 57 per cent said interaction and transparent decision-making; 57 per cent said operational and decision-making efficiency; 57 per cent said maintaining neutrality while providing opportunities for public outreach; and 50 per cent said removing real or perceived regulatory barriers to participation. Respondents identified the need to collect and consider views of individuals and organizations without expertise or defined interests as the least important driver.

Figure 3: Relative importance of drivers for regulators’ innovation in public engagement

The need to address public trust and understanding in energy related decision-making was one of the top three drivers across all regions and sectors. The need for a more interactive and transparent decision-making process was the most important driver for non-regulators, the East, and Ontario; regulators and respondents in Quebec said it was less important. The need for operational and decision-making efficiency, including a workable balance between breadth and depth of engagement, was less important in Ontario and most important in Quebec. There was broad agreement across regions and sectors on the need for regulators to remain neutral and be perceived as neutral while providing opportunities for education and public outreach. Regulators and respondents in the West said this was the second most important driver, while other participants ranked it lower.

A few notable regional differences emerged for the less important drivers in Figure 3. The need to enhance public engagement along the continuum of public participation — that is, to inform, consult, involve, collaborate, empower — was more important in the West and much less important in Ontario. Respondents in Ontario instead pointed to the need for increased equity in decision-making outcomes relatively to other regions. Respondents in Quebec placed much higher priority on the need to adjust to increasingly complex multi-jurisdictional decision processes. The need to collect and consider views of individuals and organizations without expertise or defined interest was the least important driver for all groups.

Asked for innovative practices in regulatory engagement, multiple respondents highlighted examples of well-received Indigenous engagement. Other examples included: outreach and engagement pre-hearing for potentially affected communities, sandboxing, intervenor funding initiatives, non-regulator engagement with communities, and additional survey research undertaken by regulators to uncover best practices in their engagement processes.

We also asked a number of open-ended questions to capture additional ideas for research questions and to identify some broader trends. Many participants noted the need to clarify the role of regulators in unresolved policy issues, including reconciliation with Indigenous Peoples, and lack of policy alignment between environment, energy and economic development.

With respect to two-way interactions between policymakers and regulators, respondents raised concerns over the role that enabling legislation plays in framing public engagement process. A clear example was the debate over the federal government’s Bill C-69[2], which likely coloured many Canadians’ views of regulatory processes before it was even enshrined into law. Others noted the importance of sustaining corporate memory in order to advise on the separation of policy and regulatory functions. While some respondents emphasized transparency, others noted the challenges to innovation within the confines of regulatory independence. Still others pointed to external perceptions of poor relations and oversight between policymakers, regulators and the courts.

With respect to regulatory engagement, respondents cited the challenges of creating stable, predictable, equitable decisions that are procedurally fair and consider the effects of decision-making not just for ratepayers in general, but particularly for low-income and vulnerable Canadians. Respondents of all backgrounds said they wish to see more opportunities for meaningful engagement and offered up a number of ideas including asking stakeholders how they wish to be engaged and strengthening intervenor participation while leveling the playing field with funding to help less experienced stakeholders navigate the complexities of regulatory applications. Other ideas included enhancing the depth of stakeholder participation beyond outreach, education, and the ability to provide brief comments, and the use of a layered approach for input into decision-making (e.g., provincially for policymaking, regionally for land-use planning, and locally for project decisions).

Positive Energy’s research over the last five years has identified two key principles that regulators should consider when innovating. The first is “informed reform.” Energy decision-making comprises an ever-changing, organic system of multiple component parts operating within the market-based and physical energy systems. Innovations in energy decision-making that do not carefully consider both the short and long-term and that fail to account for intended and unintended interconnections 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 can come into conflict and demand trade-offs and balance. Innovations to decision-making must forge a durable balance or they are likely to fail.

What comes next for the study?

Positive Energy’s collaborative project with CAMPUT is ongoing and is part of a broader research agenda exploring the roles and responsibilities of policymakers, regulators, the courts, Indigenous governments and municipalities in charting Canada’s energy future in an age of climate change. Other projects explore energy federalism, the evolution of regulatory independence over time, the role of public authorities in final investment decisions for LNG projects, and the impacts of new technologies on policy and regulatory decision-making.

Next steps for Positive Energy’s collaboration with CAMPUT involves in-depth qualitative case studies to identify key success factors in regulatory innovation, along with recommendations to scale up successful innovations. Specifically, one case is investigating innovations in formal policy-regulatory interactions, drawing on a range of examples across Canada. The second is examining regulators’ public engagement practices for distributed energy resources, with a focus on potential applications to other topic areas.

Finding a path forward on Canada’s energy and climate imperatives will require a clear, predictable and stable regulatory environment. Innovation will be vital. With this research, we intend to identify successful innovations and help the energy decision-making system scale them up across Canada.

*Dr. Patricia Larkin and Brendan Frank are Senior Research Associates at the University of Ottawa’s Positive Energy program.

  1. Positive Energy is a research and engagement program at the University of Ottawa that seeks to strengthen public confidence in Canadian energy decision-making through evidence-based research and analysis, engagement and recommendations for action (See also: <www.uottawa.ca/positive-energy>).
  2. Bill C-69, An Act to enact the Impact Assessment Act and the Canadian Energy Regulator Act, to amend the Navigation Protection Act and to make consequential amendments to other Acts, 1st Sess, 42nd Parl, 2019 (assented to 21 June 2019), SC 2019, c 28.

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