STANDARD QUESTIONS
1. Tell us about the organization you lead, its current structure/composition, size, key initiatives and range of work?
The Régie de l’énergie is an economic regulatory administrative tribunal mandated since 1997 to regulate and oversee Quebec’s energy sector. Its chief role is to oversee energy distributors’ operations to ensure there is enough supply to meet the needs of Quebec consumers. It also reviews complaints and sets rates and terms of service for electricity, steam, and natural gas consumers. Note: Quebec’s electricity generation is not regulated.
The Régie also intervenes for transmission line routes when disputes arise between a municipality and Hydro-Québec.
The Régie has other energy-related mandates (monitoring the price of oil products, enacting and overseeing reliability standards for power transmission in Quebec, etc.). It has recently received more mandates (reviewing oil and gas production and storage projects, issuing opinions on whether Transition énergétique Québec’s Master Plan can meet government energy targets, etc.).
The Régie has 82 employees and 10 commissioners at its Montreal office. A hearing room is also available in Quebec City as needed. The Régie has six divisions (Chairman’s Office; Committee of Commissioners; Budget, Administration and Personnel Directorate; Legal Services; Secretariat; Planning and Regulation Directorate). The Planning and Regulation Directorate has the most staff and includes economic regulation specialists.
For regulatory issues, the Régie works in project management mode by bringing together specialists and lawyers with expertise in the matter at hand. These teams of professionals advise managers and help them process cases.
In the last two years, the Régie has been especially busy with historic high numbers of applications and had to rule on new issues stemming from advances in technology. In April it made an initial decision on Hydro-Québec’s proposal to create a new class of customer for cryptographic use applied to blockchains, to create an energy block for this purpose, and to set its own rates and terms of service.
It spring 2019, it also held a hearing on the project to deploy fast-charging infrastructure, a key Quebec government initiative to promote electric vehicle sales. The project will roll out nearly 1,600 DC fast-charging stations over a 10-year period.
In recent years the Régie has favoured approaches to cut regulatory and administrative red tape. On the regulatory side, it opened a file to ensure incentive regulation mechanisms were created for Hydro-Québec transmission and distribution activities. These mechanisms are now in place and should help streamline the regulatory process for setting hydro rates vs. the cost-of-service regulation model. In the natural gas sector, the Régie allowed Gazifère to apply to set rates on a two-yearly basis to help streamline the regulatory process for applicants. For the full review of Hydro-Québec Distribution’s terms of service, the Régie allowed work sessions to be held at the start of the process and required stakeholders to submit proposals at the end of the session. After the work sessions, Hydro-Québec changed its evidence to reflect stakeholder recommendations. This process has done a great deal to streamline the way matters are addressed.
On the administrative side, the Régie proposed a draft regulation (now in force) to raise the thresholds above which capital projects by regulated firms must be submitted to the Régie for approval — thus reducing the number of cases to process. Last fall it also launched a pilot project to start shifting toward a paperless Tribunal to cut related costs and process cases more efficiently. Given the positive feedback from interveners, the Régie will extend this approach to every case it processes.
2. Though similar in their roles the many energy regulatory boards and tribunals across Canada have particular mandates and responsibilities. What do you see as the unique elements of your Organization/Board/Tribunal’s mission/legislative mandate and circumstances?
Compared to other provinces, the Régie’s mandate for electricity rates is unique in that the province’s only major power distributor, Hydro-Québec, is a monopoly whose sole shareholder is the Government of Quebec. In this context, the need for an arm’s-length organization free from political influence is all the more important. Creating an independent regulator like the Régie also addresses the FERC’s request for reciprocity to allow free access to North American electricity markets.
If passed, Bill 34, tabled in the National Assembly last June by the Government of Quebec, will make major changes to the way electricity rates are set. The bill provides that as of April 1, 2020, electricity rates will be set at 2019 levels and then indexed to inflation for the next four years. The Régie would then have to set rates every five years whereas current practice is to conduct an annual review. Hydro-Québec would also no longer need Régie approval for business plans or capital investment. The Régie would have the same responsibilities for determining transmission rates and electricity distribution terms of service. It would also retain authority to change existing rates or set new ones at any time at the request of Hydro-Québec Distribution, where circumstances warrant it and where the government has issued an Order-in-Council stating its concerns thereto.
The Régie is also characterized by unique mandates not commonly assigned to regulators in other Canadian jurisdictions (reviewing projects to issue oil and gas production and storage licences, etc.). Exploration licensees who wish to obtain an oil and gas production or storage licence must submit their project for review to the Régie and get a favourable ruling. To get a favourable ruling, they must also apply to the Régie to build and use pipelines.
The role of petroleum monitoring is unique. The Régie publishes a wide range of data for retailers and consumers. For instance, a daily report on gasoline prices and purchasing costs helps the public find out where to buy gas at the best price. It also handles requests for government input on the cost of oil and gas products.
Régie decisions are final and without appeal, unlike those of most Canadian regulators whose rulings can be appealed to a province’s Supreme Court or to the Court of Appeal. This means anyone wishing to overturn a Régie decision must do so through judicial review — an onerous task, since the reasonableness standard is applied to Régie decisions due to its status as an expert tribunal.
Lastly, the use of French is the most obvious distinguishing factor. The Régie conducts all business in French, which is important for power grid reliability standards since in North America all such communication and documents are in English.
3. Economic regulation of energy is at the centre of various public policy considerations (economic, environment, social, political). Where do you see the biggest regulatory and legislative challenges for your organization over the coming decade?
With growing global awareness of the impact of greenhouse gas (GHG) emissions, the next decade’s biggest challenge will be energy transition — a profound and unavoidable upheaval that affects us all. Standard economic regulation principles work well in a stable environment. Traditional economic regulation is good for centralized energy production with a long cost-recovery period. However, changing transforming energy markets and new technology (access to means of self-production, etc.) have created new issues that challenge traditional principles. Amid rapid structural change, economic regulators must adapt their analytical tools and the way they use them.
Growing demand for renewable natural gas is an example of change resulting from concern over GHG emissions. How do we define and regulate the role of renewable natural gas (RNG)? To increase the proportion of renewable energy the Quebec government passed the Regulation respecting the quantity of renewable natural gas to be delivered by a distributor, which states that at least 1 per cent of distributed natural gas must be from renewable sources. The proportion will increase to 5 per cent in 2025.
Energy transition will create complex problems involving multiple parties and stakeholders. To achieve collectively agreed goals, more dialogue between regulators, governments, and stakeholders may be needed.
QUESTIONS ON RECENT TRENDS
1. Focusing on environmental considerations, and specifically Greenhouse Gas Emissions, can you expand on how these factors are integrated into your regulatory approach and/or processes?
The Act respecting the Régie de l’énergie states that in the exercise of its functions, the Régie shall promote the satisfaction of energy needs “in a manner consistent with the Government’s energy policy objectives and in keeping with the principles of sustainable development and individual and collective equity.” The Régie therefore considers the GHG reduction targets set out in the government’s 2030 Energy Policy. In regulatory matters, the Act also requires that the Régie consider “such economic, social and environmental concerns as have been identified by order by the Government.”
The Régie’s case flow process also considers these things. Anyone interested in a case may apply for intervener status and weigh in on environmental issues. Environmental groups regularly appear before the Régie to advocate on the environmental impacts of various cases (GHG emissions, etc.). The Régie also has in-house economic and energy specialists to assist commissioners in their decisions.
2. We see movement by various economic regulatory bodies, aimed at modernizing regulatory tests/formulas and remuneration models. (One such move has been to equalize the treatment of capex and Opex in terms of investments in cloud services.) What are your views on existing economic regulation as it pertains to new and emerging technologies, innovation, and investment models?
To ensure sound and relevant analyses, a regulatory body’s key duties are to integrate best practices into its operations, keep informed of the latest developments, and ensure staff are proficient in them.
Competence is the top value set out in the Régie’s 2017-2020 strategic plan and will no doubt continue to be. Under the current plan, various actions will continue to track the latest trends and whether the resulting knowledge is shared. Knowledge transfer and ongoing training are also among the plan’s priority activities.
The Régie also wants to take the initiative and hold discussions, with interveners in its proceedings, on the analytical models used. For instance, it has begun exploring how to include non-economic benefits in cost-benefit analyses used to determine the cost-effectiveness and relevance of energy efficiency programs or capital projects. The process is in the early stages of preparing a case and we may hold a forum to discuss the issue.
3. Is there an opportunity for utilities, now and in the future, to work collaboratively to respond to market needs/demands (e.g., natural gas utility partnering with electric system operators on power to gas to balance renewable electricity using the gas grid as storage)?
This is an interesting question for the heads of firms that have begun exploring ways to work together in their public interventions. Energy transition may create more such opportunities (provided, of course, that projects reflect market needs and demands).
Experts will likely say power-to-gas (P2G) conversion is more suitable for certain situations (powering remote sites like mining projects, etc.). Diesel is often preferred far outside urban centres but is expensive and hard to transport. A P2G-based system may have benefits where locally-produced solar and wind energy is used.
For the approach to be worthwhile, there must be an extensive gas distribution system to convert energy on site and deliver it where it is needed. Quebec has just one major power distributor and the province’s natural gas firms serve a different clientele than those in the rest of Canada. Most electricity consumed by Quebecers comes from a renewable resource — hydroelectricity. The gas network’s scope is also more limited. In this context there is likely no room for a large-scale P2G rollout, except perhaps as a backup solution in special circumstances.
That said, for the Régie there is no apparent regulatory barrier to cooperation. The firms in question may apply to it for approval of a business plan, a joint capital project, or a rate or fee for such a joint undertaking.
4. Ratepayers bear the cost of regulation. What controls do you use to ensure the ratepayer is receiving value commensurate with the costs incurred? Do you use any performance metrics or otherwise participate in any processes (e.g. benchmarking) to evaluate regulator performance?
To gauge its performance, the Régie keeps regular track of the number of cases processed, decisions made, and time taken to process each case. These data are published in its annual report, so the public can see them. However, it has set no specific targets except to meet the legal requirement that its decisions be made with diligence — which may vary greatly depending on a case’s nature and complexity. Its preferred approach of open and ongoing dialogue with interveners helps obtain regular feedback on the effectiveness of its processes, among other things.
The Régie holds an annual meeting where most interveners can speak directly with the Chairman. A Bar of Montreal/Régie de l’énergie Liaison Committee, which includes interveners in our proceedings, also helps continuously improve our regulatory procedures and practices. Given the unique traits of the Quebec market where a limited number of people and firms fall under Régie authority, it is fairly easy to stay in contact with them and get input to improve the way we process cases.
To assess the Régie’s added value for consumers, we could compare Hydro-Québec’s requested annual rate increase to the one set by the Régie after a review of the case. For instance, in the last four years, a review of the Régie and its stakeholders led to a required revenue cut of just under $200 million on average or a cut of about 2 per cent a year for consumers. On average, for every $1 of Régie operating costs there is a rate reduction of about $110. These estimates clearly show that consumers get value for their money.
* This interview was conducted in French and has been translated for the purpose of the Energy Regulation Quarterly.