Tom Adams

February 28, 2002

Mr. Paul Pudge, Board Secretary
Ontario Energy Board
2300 Yonge St., Suite 2600
M4P 1E4

re. Draft Rules of Practice and Procedure

Dear Mr. Pudge:

Energy Probe has reviewed the Board’s draft Rules of Practice and Procedure issued on February 6. The purposes of our submissions are four fold: to urge a comprehensive reassessment of the future of the adjudication functions of the Board, second to request a public process for the review of the draft Rules, third to recommend specific amendments to the draft Rules, and fourth to provide input to the Board on the future of the cost process.

Future of Regulatory Adjudication and Due Process

In our view, these draft rules represent another step in a continuing trend that has steadily eroded due process and the independence of the Board’s adjudicative powers. Replacing these foundation stones are bureaucratic and political rule making activities. We believe that this trend jeopardizes the Board’s ability to act as an independent arbiter of disputes among consumers, shareholders, and the public interest at large on matters related to monopoly energy utilities.

Energy Probe’s concerns about regulatory adjudication and due process are long standing. We testified before the Ontario legislature hearing on Bill 35, commenting “Without due process, the regulatory process risks losing its independence, authority, and respect, and the marketplace itself risks losing legitimacy.”

On January 25, 1998, Energy Probe wrote to Minister Wilson regarding the OEB’s report called “Advisory Report to the Minister of Energy, Science and Technology on Legislative Change Requirements for Natural Gas Deregulation”. Energy Probe made the following comments:

The recommendation at page 44 of the Board’s report on legislative change suggests that the Ontario Energy Board should emerge from the adjudicative model of regulation and pursue rulemaking powers in response to emerging markets and the need for prospective, flexible, and participatory rules.

If the government is considering empowering the OEB with rulemaking powers, it is essential that these new powers are designed so as to compliment the continuing role that the adjudicative model must continue to play. The quasi-judicial role of the OEB has served gas customers well as a serious opportunity for informed decision making. Rulemaking has the potential for reducing the independence and impartiality of the Board and reducing the opportunity for public interest organizations to participate as intervenors in quasi-judicial proceedings, with opportunities for cross examination, evidence, and costs.

The major challenge for the government is to understand the competing roles of the rulemaking and adjudication in regulating modern markets. While rulemaking is often necessary as a result of a maturing market, there remains a central and continuing role for adjudication. The judicial or quasi-judicial process continues to function as the most effective means of “searching for the truth” in complex and factual adversarial matters.

In Ontario, parts of the electrical and gas markets are being opened to competition, while other parts of the business will remain within the monopoly business. In the past, the OEB has regulated the natural gas monopoly rates through a quasi-judicial adjudicative model. The model worked very well at keeping gas rates competitive. The deregulation of functions that are naturally competitive and no longer in need of regulation raises new problems

In contrast, Ontario Hydro is subject to quasi-judicial hearings regarding rate increases but not subject to binding decisions. Until now, OEB Hydro rate hearings have been elaborate notice and comment processes similar to the current process for approving federal legislation. The weakness of the current oversight of Hydro belies any move to replace the OEB’s current adjudicative model for regulating gas rates with a rulemaking notice and comment procedure. If the evidence underlying the Board’s decisions is not tested in an adjudicative process, with rights to cross examination, opportunity to lead evidence, and binding decisions, the OEB moves closer to the model that Ontario Hydro has operated under in the past and away from the model that has regulated natural gas. This would be an unfortunate circumstance.

The challenge for the government will be to protect the OEB’s traditional adjudicative function, while at the same time empowering it with rulemaking powers to regulate the emerging markets. An example is that rulemaking powers are needed to respond to the serious concerns over unregulated agents, brokers and marketers that are now beyond the scope of the OEB’s regulatory powers while continuing to adjudicate general rate applications.

The choice between adjudication or rulemaking, as an appropriate means of controlling and structuring discretion is an important one that requires a balanced view of the competing paradigms. There is no more public and accessible regulatory process in Ontario that carries as much authority as the OEB does in setting gas rates. The challenge now is for the OEB is to adopt rulemaking powers to include greater public consultation, prospective rulemaking, and regulation to meet the challenges of a maturing gas and newly opening electricity markets without weakening needed, continuing adjudicative regulation over monopoly services.

Formal Rules Review Process

Today, the Board could facilitate improved public participation in the regulatory process if it published and kept updated its plans for rulemaking. We do not consider a comment period to be an adequate form of review for proposed rules. Energy Probe believes that all rulemaking and all amendments of Rules of Practice and Procedure including the amendments we are now commenting on should be considered formal proceedings. Formal evidence should be adduced. A decision with reasons should be issued.

Specific Amendments

Rule 2.01 – Delete “expeditious” and “least expensive.” Barring deletion, place these descriptors in a subsidiary position to the term “just”.

Rules 4.04 and 4.05 – Delete these two rules and replace them with “The Board shall act only in accordance with the Rules.”

Rule 5.03 – Delete this rule.

Rule 11.01 (b) – Delete this rule and replace it with a rule that allows the Board to order supplemental filings to explain or add information as deemed necessary. Filings that are accurate, responsive, and inform the process should never be ordered revised, even if they are potentially embarrassing for some person.

Rule 23.03 (c) – Delete this rule. Provision of evidence to parties should be automatic.

Intervenor Costs

Energy Probe commissioned the attached study from Mr. Keith Bryan, a regulatory affairs expert well known to the Board and to the energy community generally in Ontario and beyond. We asked Mr. Bryan for his views on intervenor cost issues. His report was independently prepared. Given Mr. Bryan’s standing in the community and his reputation for balanced judgement, we believe that Mr. Bryan’s opinions deserve very careful consideration as the Board considers Practice Directions related to intervenor costs.

Sincerely,

Tom Adams
Executive Director